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 sell. The company has seen deteriorating net income, weak debt management and generally disappointing historical performance in the stock itself. H&R Block recently posted a first-quarter loss of $302.6 million, or 93 cents a share, compared with a loss of $131.4 million, or 41 cents a share, a year ago.
The company said it had to renegotiate sale of its Option One Mortgage to Cerberus because of continued problems in the credit market. Cerberus has indicated it will buy only the mortgage servicing business, not Option One's origination business. Revenue increased 11% to $381.2 million but missed Wall Street's expectations. H&R Block had been rated hold since September 2006.
Del Monte Foods
( DLM), which distributes canned fruit and vegetables, has been downgraded to hold. While the company's revenue has been growing, and it is reasonably valued, its net income has detiorated, its debt management is generally poor, and its return on equity is disappointing.
Del Monte recently reported that first-quarter earnings fell 44% from a year ago to $3.5 million, or 2 cents a share, because of higher costs of fish, grain, fats and oil. The company said it expects its profit for the year to be at the low end of an earlier forecast. Revenue climbed 12% to $753.5 million. The company had been rated buy since January 2006.
Lions Gate Entertainment
, a film and television company, has been downgraded to sell. The company weaknesses include deteriorating net income, generally weak debt management, disappointing return on equity and weak operating cash flow. Net income has significantly underperformed when compared with that of the media industry.
Lions Gate recently reported a first-quarter net loss of $53.1 million, or 45 cents a share, compared with a loss of $3.6 million, or 3 cents a share, a year ago. Revenue totaled $198.7 million, up from $172.5 million a year ago. Lions Gate Entertainment had been rated hold since August 2005.
, a food and beverage company, has been downgraded to sell. The company's net income has deteriorated, its debt management is weak, profit margins are poor, operating cash flow is weak, and the historical performance in the stock itself disappointing.
Last month, Dean Foods posted second-quarter earnings that were below expectations and issued third-quarter earnings guidance below expectations, citing rising raw milk prices. The company earned $28.4 million, or 21 cents a share, on revenue of $2.84 billion. Excluding exceptional items, the company earned $41.6 million, or 30 cents a share. Analysts expected earnings of 31 cents a share on revenue of $2.72 billion. Dean Foods forecast third-quarter adjusted earnings of 24 cents to 28 cents a share, while Wall Street expects earnings of 31 cents a share. The company had been rated hold since March.
has been upgraded to buy. The company has a solid stock price performance, with an impressive record of growth in earnings per share and revenue growth. These strengths are expected to outweigh the company's generally poor debt management.
Atlas America recently reported that second-quarter earnings increased 97% to $19.9 million, while EPS increased 115% to 71 cents. Revenue increased 30% to $214.9 million. The company has also announced a series of acquisitions, and Chairman and CEO Edward E. Cohen said in a statement that "we continue to look for new opportunities to expand our presence and our profits in the energy business." Atlas America had been rated hold since March.
Additional ratings changes are listed below.