TSC Ratings' Upgrades, Downgrades

Grey Wolf, Wynn, Techwell upgraded; Westaff 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 16.

Grey Wolf

(GW)

, which provides onshore contract drilling services to the oil and natural gas industry, has been upgraded to buy. The company's debt-to-equity ratio of 0.42, is below the industry average, implying successful management of debt. Its quick ratio of 4.06 demonstrates an ability to cover short-term cash needs. Net operating cash flow has increased 8.5% to $60.2 million from the year-ago quarter. Despite this increase, the Grey Wolf's cash flow growth rate still lags the industry average growth rate of 40%. At 42%, the company's gross profit margin is strong, but its net profit margin of 16% trails the industry average.

Share price has changed much from where it was a year ago. With a price-to-earnings ratio of 9.20, the stock is much cheaper than others in its sector. We believe the stock has good upside potential despite the fact that it has already risen in the past year. Grey Wolf had been rated hold since Nov. 13.

Wynn Resorts

(WYNN) - Get Report

, which develops, owns and operates destination casino resorts, has been upgraded to buy. For the fourth quarter, revenue rose 26% year over year to $711.3 million, and earnings per share swung to a profit of 57 cents from a loss of 55 cents. Net income increased to $65.45 million from a loss of $55.42 million. For 2008, the market expects an improvement in full-year EPS to $3.00 from $2.34 for 2007.

Net operating cash flow has increased 66% to $116.88 million from the year-ago quarter. At 38%, the company's gross profit margin is strong, but its net profit margin of 9.2% trails the industry average. Wynn Resorts had been rated hold since Dec. 4.

Techwell

(TWLL)

, a semiconductor company, has been upgraded to hold. Strengths such as revenue growth, a solid financial position and notable return on equity are countered by a disappointing stock-price performance and unimpressive growth in net income. For the fourth quarter, revenue increased 3.1% to $16.5 million, while earnings per share declined to 20 cents from 22 cents. For 2008, the market expects an improvement in full-year EPS to 71 cents from 68 cents in 2007. The company has a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. It also maintains a quick ratio of 11.62, which clearly demonstrates the ability to cover short-term cash needs.

Shares have fallen 25% in the past year. The decline should not necessarily be interpreted as a negative; it could make the stock attractive down the road. Right now, however, we believe that it is too soon to buy. Techwell had been rated sell since Aug. 7.

Westaff

(WSTF)

, a provider of temporary staffing services, has been downgraded to sell. For the past fiscal year, earnings per share swung to a loss of 13 cents from a profit of 19 cents a year ago. The company has reported a trend of declining earnings per share over the past two years. For the second quarter, net income decreased to a loss of $1.9 million from a profit of $400,000. Return on equity has greatly decreased year over year and trails the industry average. This is a signal of major weakness within the corporation.

The company's gross profit margin is rather low at 17%, and its net profit margin of negative 1.6% trails that of the industry average. Net operating cash flow has decreased to a loss of $3.4 million from the year-ago quarter. In addition, when comparing to the industry average, the firm's growth rate is much lower. Westaff had been rated hold since June 28.

Additional ratings changes from April 16 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

GW

GREY WOLF INC

Upgrade

Buy

Hold

WSTF

WESTAFF INC

Downgrade

Sell

Hold

WYNN

WYNN RESORTS LTD

Upgrade

Buy

Hold

AUSI

AURA SYSTEMS INC

Initiated

Sell

TWLL

TECHWELL INC

Upgrade

Hold

Sell

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

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