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TSC Ratings' Updates: Chipotle

We've upgraded temperature-sensitive truckload carrier Marten Transport (MRTN - Get Report) from hold to buy, driven by its impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins.

EPS improved in the most recent quarter compared with the same quarter last year, and we feel that the company's year-long trend of EPS growth should continue. Net income rose 96.3%, from $3 million in the year-ago quarter to $5.8 million. Marten's debt-to-equity ratio of 0.02 is below the industry average. The 1.1 quick ratio implies the ability to avoid short-term cash problems. Revenue fell 3.1%, but EPS increased.

Shares rose over the past year, outperforming the S&P 500. The stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

We've downgraded Schweitzer-Mauduit International (SWM - Get Report), which manufactures and sells paper and reconstituted tobacco products to the tobacco industry, from hold to sell. This rating is driven by the company's decline in the stock price during the past year, disappointing return on equity, poor profit margins, weak operating cash flow and feeble growth in its earnings per share.

ROE decreased from the same quarter a year ago, implying a minor weakness. The company's gross profit margin is 21.9%, though it has increased from the year-ago period. Net operating cash flow fell 71.7% to $5.3 million compared with the year-ago quarter. EPS declined, though the consensus estimate suggests that the company's year-long pattern of declining EPS should reverse in the coming year.

Shares tumbled 12.4% over the past year, in par reflecting the market's overall decline. We do not see anything in this company's numbers that would change the one-year trend. It was down over the last 12 months; and it could be down again in the next 12. Naturally, a bull or bear market could sway the movement of this stock.

All ratings changes from April 6 are listed below.

Advent Software
AEHR Test Systems
Chipotle Mexican Grill
Lawson Software
Marten Transport
Xinyuan Real Estate

Note: Our quantitative model makes stock recommendations based on GAAP figures that may differ materially from data as reported by the companies themselves. As a result, rating changes are occasionally driven by so-called nonrecurring items. As always, we urge readers to use TSC Ratings' reports in conjunction with additional information to construct their opinions on the value that should be placed on any given stock. Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!
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