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.
Office products retailer
has been downgraded to hold. Despite a challenging environment, the company bolstered its top-line by introducing new offerings and services designed to attract new customers and strengthen its relationships with existing customers. However, higher energy and construction costs and the slowdown in the housing market have eaten into Office Depot's profits. Also, new store openings may cannibalize the existing business to some extent. Last month, the company said second-quarter earnings slipped 8% from a year earlier to $109.1 million, or 40 cents a share. Sales totaled $3.63 billion, up from $3.49 billion a year ago. Office Depot had been rated buy since August 2005.
, a specialty chemicals company, has been upgraded to buy. The company has enjoyed revenue growth, expanding profit margins, good cash flow from operations, a solid stock price performance and a notable return on equity. These strengths should outweigh Rockwood's sub-par growth in net income. In July, the company said second-quarter profit slipped 25% to $28 million, or 37 cents a share, due mostly to special costs and charges. Adjusted earnings totaled 51 cents a share. Revenue increased 10% to $850.7 million. The company said it is on track to achieve its target of 5% to 6% growth in sales. Rockwood Holdings was initiated with a sell rating in September 2006.
, a Brazilian commercial jet maker, has been upgraded to hold. While the company has experienced revenue growth and solid stock price performance, it has also seen feeble EPS growth, deteriorating net income and generally poor debt management. Earlier this month, Embraer said second-quarter profit sank about 49% to $39.9 million, or 6 cents a share. The company cited higher costs connected to longer production cycles and labor costs, including overtime and recently hired employees. Sales were essentially flat at $1.1 billion. This week the company announced a contract with Brazilian airline BRA Transportes Aereos with a firm order valued at $730 million, which with rolling options, could total $2.7 billion, if all the options are confirmed. Embraer had been rated sell since June.
has been downgraded to hold. The company's financial position is largely firm, with solid stock performance and expanding profit margins. However, Semtech has also seen deteriorating net income, with disappointing return on equity and weak operating cash flow. In May, Semtech said first-quarter profit fell 33% to $7.9 million, or 11 cents a share, while sales fell 8% to $60.6 million. Excluding items, Semtech earned $10.6 million or 14 cents a share. The company still beat Wall Street's estimates and said it expects second-quarter results, scheduled for release on Aug. 28, to be above analysts' forecasts. New orders were up 7% over the fourth quarter of 2007. Semtech had been rated buy since July.
, which develops pipeline and other midstream energy infrastructure, has been upgraded to hold. While the company has experienced revenue growth and good cash flow from operations, it has also been marked by unimpressive growth in net income, generally poor debt management and disappointing return on equity. Last month, Enterprise GP said second-quarter net income slipped to $22 million, or 21 cents a unit, compared with $31 million, or 30 cents a unit a year earlier. Revenue totaled $6.3 billion, up from $5.9 billion a year ago. Enterprise was initiated with a sell rating in September 2006.
Additional ratings changes are listed below.