TSC Ratings' Updates: Tesoro

Shares are off by a sharp 29.7% year over year, but that decline was not as bad as the broader market's.The fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.

We've upgraded Turkcell Iletisim Hizmetleri(TKC Quote), which provides mobile telecommunication services, including mobile voice and data services over its GSM network, in Turkey, from hold to buy. This rating is driven by the company's robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Revenue rose by 19.6% since the same quarter a year ago, compared with the industry average of 181.6% growth. The company's debt-to-equity ratio is very low at 0.1 and is currently below that of the industry average, implying very successful management of debt levels, and it has a quick ratio of 1.95, which demonstrates an ability to cover short-term liquidity needs. Current return on equity exceeded its ROE from the same quarter one year prior, a clear sign of strength within the company.

EPS are up significantly in the most recent quarter compared with the same quarter last year. The company has demonstrated a pattern of positive EPS growth over the past two years, which we feel should continue. During the past fiscal year, Turkcell increased its bottom line by earning $1.54 vs. $1.00 in the prior year. This year, the market expects an improvement in earnings to $2.11.

We've upgraded Tesoro(TSO Quote), which engages in refining and marketing petroleum products, from sell to hold. Strengths include its robust revenue growth, good cash flow from operations and increase in net income. However, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and generally poor debt management.

Revenue rose by 48.2% since the same quarter last year, outperforming the industry average of 29%. Net income rose by 451.1%, to $259 million. Return on equity, however, decreased, a signal of major weakness. Shares are down 66.9% on the year, which is worse that the performance of the S&P 500. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared with its current earnings) than most other companies in its industry.

Other ratings changes include Unifi(UFI Quote), downgraded from hold to sell, and CSP(CSPI Quote), also downgraded from hold to sell.

All ratings changes generated on Jan. 8 are listed below.

Ticker Company Current Change Previous CAGU Castle Group SELL Initiated - CFSG China Fire & Security HOLD Upgrade SELL CRA Celera SELL Downgrade HOLD CSPI CSP SELL Downgrade HOLD DION Dionics HOLD Upgrade SELL EOG EOG Resources HOLD Downgrade BUY FPL FPL Group BUY Upgrade HOLD TKC Turckell BUY Upgrade HOLD TSO Tesoro HOLD Upgrade SELL UFI Unifi SELL Downgrade HOLD XRTX Xyratex SELL Downgrade HOLD

Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates.

While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story, and that it should be part of an investor's overall research.