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.
Financial services company
has been downgraded to hold.The company's stock is attractively valued and its revenue and EPS growth have been impressive. However, debt management has been poor, return on equity has been disappointing and operating cash flow has been weak. Last month, Citigroup said second-quarter net income climbed 18% to $6.23 billion, or $1.24 a share, while revenue increased 20% to $26.6 billion. The results beat Wall Street's expectations, but Citigroup executives warned that credit had been a drag on results and said that they expected to see continued deterioration in consumer credit during the second half of the year. Citigroup had been rated a buy since August 2005.
, a semiconductor company, has been upgraded to buy. The company is in a firm financial position with a solid stock price performance and revenue growth, an increase in net income and good cash flow from operations. TheStreet.com Ratings believes these factors should outweigh Intel's somewhat disappointing return on equity. Intel said in July that second-quarter earnings climbed 44% to $1.3 billion, or 22 cents a share, while revenue increased 8% to $8.7 billion. Intel executives said the company benefited from a strong product lineup and improvements in its manufacturing operations. Servers and notebook PC microprocessors were Intel's strongest businesses during the second quarter. Intel had been rated a hold since April of 2006.
Red Robin Gourmet Burgers
, a quick service restaurant chain, has been downgraded to hold. While the company has experienced robust revenue growth and is reasonably well valued at its current stock price, it has also seen disappointing return on equity and poor profit margins. Its stock price performance has also been generally disappointing. Last week Red Robin said second-quarter earnings fell 32% to $4.9 million, or 29 cents a share, because of one-time charges and the increased costs of dairy and cheese products. Excluding charges, the company would have earned 44 cents a share. Revenue increased 32% to $178.6 million. Red Robin Gourmet Burgers had been rated a buy since April.
Charles River Laboratories
, a medical research company, has been upgraded to buy. The company is operating from a largely firm financial position, with solid stock performance, reasonable valuation levels and growth in revenue and earnings per share. These strengths are expected to outweigh Charles River's somewhat disappointing return on equity.
Earlier this month, the company said second-quarter earnings increased 47% to $38 million, or 55 cents a share, as pharmaceutical and biotechnology customers continued demanding research models and outsourced services. Excluding items, the company earned 64 cents a share. Revenue totaled $307.4 million, up from $267.9 million a year ago. Charles River also raised its full-year sales guidance and the low end of its profit forecast and increased its stock buyback authorization. Charles River Laboratories had been rated a hold since early August.
has been upgraded to buy. The company has enjoyed a solid stock performance and revenue growth, notable return on equity, good cash flow from operations and expanding profit margins. These strengths are expected to outweigh its subpar growth in net income. In July, Gartner said second-quarter earnings fell 23% to $14 million, or 13 cents a share, as results were pulled down by rising costs and a drop in revenue. Company executives noted that contract value had increased by 19%. Gartner said it would allocate more resources toward growing the research business and will add more sales associates this year than previously anticipated. The company had been rated a hold since June.
Additional ratings changes are listed below.