Each weekday, 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.
Baldwin & Lyons
, an insurance company, has been upgraded to buy. The company has a largely solid financial position and its stock price has appreciated over the past year. These strengths are expected to outweigh the company's subpar growth in net income. Baldwin & Lyons recently said that, including investment gains, second-quarter net income totaled $14.8 million, or 98 cents a share, compared with $5.4 million, or 36 cents a share, from a year ago. Net premium earned by the company's insurance subsidiaries increased 6.3% to $44.8 million. The company had been rated hold since May.
, a biotechnology company, has been downgraded to hold. The company has reported revenue growth, has reasonable valuation levels and good cash flow from operations. However, net income growth has been unimpressive, debt management has been poor and return on equity has been disappointing. Cephalon recently swung to a second-quarter loss of $4.3 million, or 6 cents a share, compared with earnings of $50.4 million, or 76 cents a share, a year earlier. Excluding a settlement charge, the company said it earned $1.14 a share. Revenue edged up slightly to $447.2 million from $440.1 million. The company had been rated hold since May.
Charles River Laboratories
, a medical researcher, has been downgraded to hold. While revenue has grown, the company's return on equity has been disappointing. In May, it swung to a first-quarter profit of $36.8 million, or 54 cents a share, compared with a loss of $100.1 million, or $1.37 a share, a year earlier. Based on net income growth from the year-ago quarter, Charles River Laboratories has significantly underperformed when compared with the Life Sciences Tools & Services industry average. Revenue increased 15% to $291.2 million, significantly trailing the industry average of 140.7%. The company had been rated buy since October.
, which provides interactive television services, including on-demand movies and other features, and high-speed Internet access to hotels, has been downgraded to sell. The company has seen deteriorating net income, weak operating cash flow and feeble growth in its earnings per share. LodgeNet recently posted a second-quarter loss of $34 million, or $1.52 a share, compared with income of $400,000, or 2 cents a share, a year earlier. The company has significantly underperformed when compared with the media industry. Net operating cash flow has significantly decreased when compared to the same quarter last year. LodgeNet Entertainment had been rated hold since August 2005.
, which develops multimedia content-distribution software, has been downgraded to hold. Although the company has a solid stock price performance, an impressive record of growth in net income and earnings per share, return on equity has been disappointing. Last month it lowered its forecasts for second-quarter earnings, citing two contracts that failed to materialize. Macrovision said revenue for the quarter would be between $57 million and $59 million, instead of the $65 million to $68 million projection it had previously issued. Macrovision cut its forecasts for earnings before extraordinary items to between 19 cents and 22 cents a share from 24 cents to 27 cents a share previously. Wall Street had expected EPS before items of 27 cents on revenue of $67.2 million. The company had been rated buy since February.
Additional ratings changes are listed below.