TSC Ratings' Updates: Quanta Services

The following ratings changes were generated on Friday, Feb. 6.

We've upgraded BMC Software(BMC Quote) from hold to buy, driven by its revenue growth, growth in earnings per share, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Revenue increased by 6.4% since the year-ago quarter, and net operating cash flow increased by 137.8%. Earnings per share rose 7.1% compared with the same quarter last year, and we expect the company's two-year trend of increasing EPS to continue. BMC's gross profit margin of 86.4% is very high, having increased from the same quarter the previous year, but its net profit margin of 17.2% underperforms the industry average. The company's debt-t-equity ratio of 0.3 is low, but it is higher than the industry average. Its quick ratio of 0.95 is weak.

We've downgraded Novellus Systems(NVLS Quote), which engages in the manufacture, marketing and servicing of semiconductor equipment, from hold to sell. This rating was driven by the company's deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Net income fell by 346.4% since the year-ago quarter, significantly underperforming the S&P 500 and the semiconductors and semiconductor equipment industry. Return on equity also greatly decreased, a signal of major weakness within the corporation. Revenue fell by 48.1%. EPS fell 389.4%, though the consensus estimate suggests that the company's two-year trend of declining EPS should reverse in the coming year.