Stock Upgrades, Downgrades From Ratings

CIT downgraded, PPF and Stratus Properties downgraded; Hartmarx upgraded.
Publish date:

Each weekday, 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 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.

CIT Group

(CIT) - Get Report

provides financing and leasing products to various industries. It has been downgraded to hold from buy. The company's second-quarter revenue was up 21% on the year, though the increase does not seem to have trickled down to its earnings. It swung to a loss of 70 cents per share from a profit of $1.12 per share a year earlier.

Additionally, the company's debt-to-equity ratio of 9.01 is higher than the industry average and implies very poor management of debt levels at the company. CIT Group had been rated a buy since May 2007.

Apparel designer and manufacturer



has been upgraded to buy from hold. Its net income was up 38.6% in the second quarter over the year-earlier period, significantly outperforming the

S&P 500

and its industry. The company's gross profit margin of 36.7% was also up on the year.

Hartmarx's stock has increased by 39.32% over the past year, pushing it to a level that is relatively expensive compared with the rest of its industry. Ratings feels, however, that its strengths justify the high price levels.

PFF Bancorp


operates as a holding company for PFF Bank and Trust. It has been downgraded to hold from buy. The company's revenue increased by 14.6% in the fourth quarter of its fiscal 2007 compared with the same period last year, outpacing the industry average of 12.9%. Its gross profit margin is relatively high at 49.3% but has decreased significantly compared with the fourth quarter of 2006.

PFF's return on equity for the most recent quarter was also down on the year. Its EPS increased 7.65% in fiscal 2007, though this did not help its stock price, which has declined 43.14% over the past 12 months. This decline should not necessarily be interpreted as a negative; that could be a factor that makes it attractive down the road. Right now, however, Ratings believes that it its too early to buy.

Stratus Properties

(STRS) - Get Report

and its subsidiaries engage in the acquisition, development, management and sale of commercial, multifamily and residential real estate in the Austin, Texas, area. It has been downgraded to hold from buy.

The company's return on equity improved to 17.94% in the first quarter of 2007 compared with 16.83% in the same quarter last year; this can be construed as a modest strength within the organization. Its gross profit margin of 56.6% has increased significantly from the same period last year, and its net profit margin of 11.9% significantly outperformed against the industry average. Stratus' stock price has increased 15.79% in the past year, but there is currently no conclusive evidence that warrants the purchase or sale of this stock. It had been rated a buy since June 2006.