TSC Ratings' Updates: Coach

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 Friday, June 12.

We've upgraded Compellent Technologies(CML Quote) from sell to hold. Strengths include the company's robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Revenue leaped by 53.3% since the same quarter last year, and EPS improved. Compellent has no debt to speak of and maintains a quick ratio of 3.5, demonstrating its ability to cover short-term cash needs. The 54.6% gross profit margin has increased from the year-ago quarter, though the net profit margin of 3.6% trails the industry average. On the basis of return on equity, Compellent underperforms both the industry average and the S&P 500.

Shares have risen over the past year, outperforming the S&P 500 over the same time period. Although other factors naturally played a role, the company's strong earnings growth was key. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.

We've upgraded Coach(COH Quote) from sell to hold. Strengths include the company's largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year and feeble growth in the company's earnings per share.