TSC Ratings' Updates: Seagate Technology

The following ratings changes were generated on Friday, Feb. 13.

We've downgraded engineered automotive systems manufacturer BorgWarner(BWA Quote) from hold to sell, driven by its disappointing return on equity, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Return on equity has greatly decreased since the same quarter last year, a signal of major weakness within the corporation. Net operating cash flow fell 42.8% to $135.7 million but outperformed the industry average of -122.7% growth. Earnings per share declined by 216.7% compared with the year-ago quarter, but the consensus estimate suggests that the company's two-year trend of declining EPS should reverse in the coming year. BorgWarner's gross profit margin of 14.1% is extremely low, having decreased since the same quarter last year.

Shares tumbled by 53% over the past year, underperforming the S&P 500, but that should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

We've upgraded DG FastChannel(DGIT Quote), which provide digital technoloty services that enable the electronic delivery of advertisements, syndicated programs and video news releases, from hold to buy. This rating is driven by the company's robust revenue growth, compelling growth in net income, expanding profit margins, impressive record of EPS growth 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.