TSC Ratings' Upgrades, Downgrades

Allied Waste, Delhaize, Rockwood Holdings, Nustar upgraded; Argo Group downgraded.
By TheStreet Ratings Staff ,

Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates.

While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story, and that it should be part of an investor's overall research.

The following ratings changes were generated on April 15.

Allied Waste

( AW), which operates as a nonhazardous solid waste management company, has been upgraded to buy. For the fourth quarter, revenue increased 3.7% year over year to $1.52 billion, and earnings per share climbed to 27 cents from breakeven. For 2008, the market expects an improvement in full-year EPS to 92 cents from 70 cents in 2007.

Net income growth from the same quarter one year ago has significantly exceeded that of the

S&P 500

and the Commercial Services & Supplies industry. Net income increased to $115.3 million from $9.8 million. At 39%, the gross profit margin is strong, and the net profit margin of 7.6% is above that of the industry average. With a price-to-earnings ratio of 16.09, the stock is cheaper than others in its sector. Allied Waste had been rated hold since Dec. 20.

Delhaize

(DEG)

, which operates retail food supermarkets in North America, Europe and Southeast Asia, has been upgraded to buy. For the fourth quarter, revenue grew 3.8% to $7.44 billion, driven by comparable store sales growth and a higher number of stores. An improved sales mix helped improve gross profit margin by 18 basis points to 28.20%, and operating margin widened 170 basis points to 5.49%. Consequently, earnings climbed 8.9% to $177.99 million, or $1.76 a share. Return on assets widened 86 basis points to 4.65%. Meanwhile, the debt-to-equity ratio improved to 0.73 from 0.88, on the back of reduced debt and increased equity by 3.4% and 15.4%, respectively. The interest coverage ratio improved to 4.52 from 3.68, triggered by lower interest expense.

There are some risks to the buy rating. Delhaize derives the majority of its revenue from the U.S. Any further weakening of the U.S. dollar against the euro may reduce the top line. Moreover, a slowdown in the U.S economy and a decrease in consumer spending may negatively affect sales growth in the upcoming quarters. Delhaize had been rated hold since Oct. 5.

Rockwood Holdings

(ROC)

, which makes and markets specialty chemicals and advanced materials for industrial and commercial markets, has been upgraded to buy. For the fourth quarter, revenue grew 17% year over year to $807.2 million, and earnings per share improved to 24 cents from 7 cents. For 2008, the market expects an improvement in full-year EPS to $2.11 from $1.16 for 2007. Net income increased to $119.1 million from $4.5 million in the year-ago quarter.

At 37%, the gross profit margin is strong, and the net profit margin of 15% exceeds the industry average. The stock's rise in price has outperformed the S&P 500 over the past year. Although other factors naturally played a role, the company's strong earnings growth was key. We believe this stock still has good upside potential despite its nice rise. Rockwood Holdings had been rated hold since Jan. 16.

Nustar

(NSH)

holds interest in NuStar Energy, which transports, terminals and stores crude oil and refined product. The stock has been upgraded to hold. Strengths such as good cash flow from operations, expanding profit margins and a solid financial position are countered by a decline in the stock price during the past year and unimpressive growth in net income.

Net operating cash flow has increased 18% year over year to $17 million to modestly surpass the industry average cash flow growth rate. The company's gross profit margin is very high at 100%, and its net profit margin of 96% significantly outperformed against the industry average.

The debt-to-equity ratio is very low at 0.01, implying very successful management of debt levels. However, a quick ratio of 0.91 is somewhat weak and could be cause for future problems.Net income has fallen 11% year over year to $9.24 million. Shares are off 8.3% in the past year. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. Nustar had been rated sell since Aug. 15.

Argo Group

(AGII)

, which through its subsidiaries underwrites specialty insurance and reinsurance products in the property and casualty market, has been downgraded to hold. Strengths such as revenue growth, a solid financial position and an attractive valuation are weighed down by unimpressive net-income growth, disappointing return on equity and poor profit margins.

For the fourth quarter, revenue increased 9.2% year over year to $265.4 million, while earnings per share declined to 79 cents from $1.42. Net income decreased by 25% to $23.5 million in the same period. The company's debt-to-equity ratio is very low at 0.27, implying successful management of debt levels. Return on equity has fallen to 5.6% from 12% in the year-ago quarter. This is a clear sign of weakness within the company. Argo Group had been rated buy since Feb. 15.

Additional ratings changes from April 15 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

ANS

AIRNET SYSTEMS INC

Upgrade

Hold

Sell

AW

ALLIED WASTE INDUSTRIES INC

Upgrade

Buy

Hold

AGII

ARGO GROUP INTL HOLDINGS LTD

Downgrade

Hold

Buy

BRID

BRIDGFORD FOODS CORP

Downgrade

Sell

Hold

ACFN

ACORN ENERGY INC

Downgrade

Hold

Buy

FUR

WINTHROP REALTY TRUST

Downgrade

Sell

Hold

HBIO

HARVARD BIOSCIENCE INC

Upgrade

Buy

Hold

LDL

LYDALL INC

Upgrade

Buy

Hold

MVCO

MEADOW VALLEY CORP

Downgrade

Hold

Buy

PNNW

PENNICHUCK CORP

Downgrade

Hold

Buy

PHIIK

PHI INC

Upgrade

Buy

Hold

SEAC

SEACHANGE INTERNATIONAL INC

Upgrade

Hold

Sell

DEG

DELHAIZE GROUP - ETS DLHZ FR

Upgrade

Buy

Hold

NGMC

NEXT GENERATION MEDIA CORP

Downgrade

Sell

Hold

ROC

ROCKWOOD HOLDINGS INC

Upgrade

Buy

Hold

NSH

NUSTAR GP HOLDINGS LLC

Upgrade

Hold

Sell

VPFG

VIEWPOINT FINANCIAL GROUP

Initiated

Hold

OPTT

OCEAN POWER TECHNOLOGIES INC

Initiated

Sell

RRST

RRSAT GLOBAL COMM NTWRK LTD

Downgrade

Sell

Hold

CNCTU

180 CONNECT INC

Initiated

Sell

This article was written by a staff member of TheStreet.com Ratings.

Loading ...