TSC Ratings' Upgrades, Downgrades
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 29.
Massey Energy
( MEE), which through its subsidiaries produces, processes and sells bituminous coal, has been upgraded to buy. For the first quarter, earnings per share improved 30% year over year to 52 cents. For 2008, the market expects an improvement in full-year EPS to $2.80 from $1.16 in 2007. Net income increased 29% to $41.9 million in the same period, while revenue increased 3.9% to $631 million. Powered by strong earnings, share price has more than doubled in the past year. The stock's rise has netted it a price-to-earnings ratio of 43, which makes it more expensive than others in its industry. We feel that other strengths outweigh the premium valuation. Massey Energy had been rated hold since Feb. 7, 2007.
McAfee
( MFE), a security technology company, has been upgraded to buy. For the first quarter, revenue improved 17% year over year to $369.6 million, while earnings per share declined to 19 cents from 27 cents. For 2008, the market expects an improvement in full-year EPS to $1.91 from $1.02 in 2007. The company's gross profit margin is very high at 74%, but its net profit margin of 8.6% has decreased from the year-ago quarter. Net income has decreased 27% year over year to $31.6 million. The stock's price rise over the last year has driven it to a level that is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels. Mcafee had been rated hold since Jan. 24.
Allstate
(ALL) - Get Report
, which through its subsidiaries offers personal property and casualty insurance, has been downgraded to hold. Strengths such as a solid financial position and notable return on equity are balanced by feeble growth in earnings per share, deteriorating net income and poor profit margins. The company's debt-to-equity ratio is very low at 0.28, implying successful management of debt levels.
For the first quarter, revenue fell 13% year over year to $8.09 billion, and earnings per share declined to 62 cents from $2.41. Net income decreased 77% from the year-ago quarter to $348 million. Gross profit margin is extremely low at 6.5% and has decreased since last year. Along with this, a net profit margin of 4.3% trails the industry average. Allstate had been rated buy since TheStreet.com Ratings initiated coverage on April 25, 2006.
U.S. Airways
(LCC)
, an air transportation provider, has been downgraded to sell. The company's debt-to-equity ratio is very high at 2.79 and exceeds the industry average, implying very poor management of debt. Its quick ratio of 0.87 is also poor. The gross profit margin for U.S. Airways is currently 6.5% and has decreased significantly from the same period last year. Net operating cash flow has significantly decreased to negative $25.0 million.
Return on equity has also decreased year over year to 11%. This is a signal of major weakness within the corporation. Shares have tumbled 83% in the past year, consistent with a significant decline in earnings per share. U.S. Airways had been rated hold since TheStreet.com Ratings initiated coverage on April 25, 2006.
Century Aluminum
(CENX) - Get Report
, which produces primary aluminum, has been downgraded to sell. For the first quarter, net income has swung to a loss of $232.8 million from a profit of $64.3 million a year ago. The debt-to-equity ratio of 1.27 is high compared with the industry average, suggesting a need for better debt management. In addition, CENX has a quick ratio of 0.69, demonstrating an inability to cover short-term liquidity needs.
The company's return on equity significantly trails that of both the industry average and the
S&P 500
. Its gross profit margin is rather low at 25%, and the negative net profit margin of 49% is significantly below that of the industry average. Net operating cash flow has decreased 40% to $58.9 million year over year and its growth rate trails that of its sector peers. Century Aluminum had been rated hold since July 26.
Additional ratings changes from April 29 are listed below.
Ticker | Company Name | Change | New Rating | Former Rating |
ALL | Allstate | Downgrade | Hold | Buy |
LCC | U.S. Airways | Downgrade | Sell | Hold |
AMT | American Tower | Upgrade | Buy | Hold |
CENX | Century Aluminum | Downgrade | Sell | Hold |
CHC | Centerline Holding | Downgrade | Sell | Hold |
ATX | A T Cross | Downgrade | Hold | Buy |
DAIO | Data I/O Corp. | Upgrade | Buy | Hold |
FBN | Furniture Brands | Upgrade | Hold | Sell |
MEE | Massey Energy | Upgrade | Buy | Hold |
MFE | McAfee | Upgrade | Buy | Hold |
SHEN | Shenandoah Telecommunications | Upgrade | Buy | Hold |
VQ | Venoco | Initiated | Sell | |
AHII | Animal Health International | Downgrade | Sell | Hold |
MLNX | Mellanox Technologies | Initiated | Sell | |
ORIT | Oritani Financial | Initiated | Hold |
This article was written by a staff member of TheStreet.com Ratings.