TSC Ratings' Updates: Microsoft

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

The following ratings changes were generated on Monday, June 8.

We've upgraded Computer Sciences(CSC) from hold to buy, driven by its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins.

Net income increased by 110.4% compared with the same quarter a year ago, from $181.7 million to $382.3 million. The company's debt-to-equity ratio of 0.8 is below the industry average, and its quick ratio of 1.5 demonstrates an ability to cover short-term liquidity needs. Return on equity increased greatly compared with the year-ago quarter, a signal of significant strength within the corporation. Net operating cash flow increased 25.3% to $1.1 billion.

We've upgraded Microsoft(MSFT) from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Microsoft's debt-to-equity ratio of 0.05 is very low and currently below the industry average, and its quick ratio of 1.5 illustrates its ability to avoid short-term cash problems. The 84.3% gross profit margin is very high, though it has decreased from the year-ago quarter, and the net profit margin of 21.8% compares favorably with the industry average. Revenue fell 5.6% since the same quarter last year, and EPS Decreased. Net income decreased by 32.1%, from $4.4 billion to $3 billion, but outperformed both the S&P 500 and the software industry average. ROE decreased slightly.