Ratings Changes: Costco, Boston Beer

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BOSTON (TheStreet) -- TheStreet.com's stock-rating model upgraded microprocessor designer Arm Holdings(ARMH Quote) to "buy."

The numbers: Second-quarter net income fell 30% to $13 million as revenue dropped 5% to $124 million. Earnings per share remained flat at 4 cents because of a decline in shares outstanding. The operating margin expanded from 19% to 27%, but the net margin declined from 14% to 10%. Arm Holdings has an ideal financial position. Its balance sheet holds $145 million of cash, which translates to a quick ratio of 1.7, and zero debt.

The stock: Arm Holdings has surged 67% this year, beating major U.S. indices. The stock trades at an exorbitant price-to-earnings ratio of 36 and offers a weak 1.6% dividend yield. But the company is poised to benefit from a rebound in tech spending.

The model upgraded Central European Distribution(CEDC Quote), a Philadelphia-based company that makes and sells alcoholic beverages, to "hold."

The numbers: Second-quarter revenue declined 14% to $362 million, but net income quadrupled to $213 million and earnings per share tripled to $4, restricted by a higher share count. The jump in net income was caused by a one-time gain on an equity investment. Nevertheless, operating performance improved. Its gross margin climbed from 25% to 33% and its operating margin increased from 10% to 12%. The company has an adequate liquidity position, as reflected by a quick ratio of 1. But a debt-to-equity ratio of 1 indicates higher-than-ideal leverage.

The stock: Central European Distribution is up 70% this year, trouncing major U.S. indices. The stock trades at a fair 2009 price-to-earnings ratio of 14, but doesn't pay dividends.