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.
Direct marketing company
has been downgraded to a hold. While the company has a largely solid financial position with reasonable debt levels and notable return on equity, it is also struggling with deteriorating net income, poor profit margins and weak operating cash flow. Harte-Hanks recently reported disappointing second-quarter results, earning $22.9 million, or 31 cents a share, on revenue of $290.1 million. Analysts had expected earnings of 33 cents a share on revenue of $296.8 million. A year earlier, the company earned $30.2 million, or 37 cents a share, on revenue of $298.4 million. Harte-Hanks' gross profit margin is currently lower than what is desirable, coming in at 26.20% and down from a year ago. Its net profit margin of 7.90% trails that of the industry average. Harte-Hanks had been rated a buy since September 2005.
, an oil and natural gas company, has been upgraded to a hold. The company has seen robust revenue growth, increased net income and good cash flow from operations. However, its return on equity and the performance of its stock have both been disappointing. Stone Energy recently swung to a second-quarter profit, posting net income of $72 million, or $2.60 a share, compared with a net loss of $1.5 million, or 5 cents a share, a year earlier. Its revenue increased 19.6% over the same period to $200.3 million, exceeding the industry average of 3.9%. However, its return on equity has fallen significantly and trails the industry average. Stone Energy had been rated a sell since February.
, which provides design and electronics manufacturing services to original equipment manufacturers, has been upgraded to a buy. The company has seen attractive valuation levels and good cash flow from operations, with robust growth in revenue, earnings per share and net income. TheStreet.com Ratings feels these strengths outweigh the company's low profit margins. Flextronics recently reported that its first-quarter income climbed about 26% to $106.9 million, or 17 cents a share, outperforming the industry average. Adjusted earnings rose 22% to 22 cents a share, or $134 million. Revenue increased 27% to $5.16 billion, exceeding the industry average of a 1.3% rise. Flextronics forecast second-quarter earnings in the range of 22 cents to 24 cents on an adjusted basis, in line with analysts' average estimate of 23 cents. The company had been rated a hold since November 2005.
( EPHC), an investment management and advisory company, has been upgraded to a buy. The company retains a largely solid financial position with reasonable debt levels, good cash flow from operations and growth in revenue, earnings per share and net income. These strengths should outweigh the fact that Epoch Holding is trading at a premium valuation. The company recently reported that its assets under management reached $5.38 billion in the quarter ended March 31, up 26.2% over the previous quarter. It has demonstrated a pattern of positive EPS growth over the past year and this trend is expected to continue. Net income increased by 315.4% from a year ago, rising to $2.29 million, significantly exceeding that of the capital markets industry. Revenue jumped 114.1% from a year ago, greatly exceeding the industry average of 25.8%. Epoch Holding had been rated a hold since March.
Chinese online game maker
has been downgraded to a hold. While the company boasts a largely solid financial position, reasonable debt levels and a solid stock price performance, its EPS growth has not been good. The9 Limited recently reported second-quarter net income dropped 40% to $6.6 million, or 25 cents, per American Depositary Share. Excluding items, the company reported earnings of $14.3 million, or 54 cents, per American Depositary Share. The company has demonstrated a pattern of positive EPS growth over the past two years, but TheStreet.com Ratings anticipates some underperformance in this area in the coming year. Revenue rose by 32.1% over a year ago, higher than the industry average of 18.1%. Current return on equity exceeded its ROE from the same quarter one year prior. The9 Limited had been rated a buy since June.
Additional ratings changes are listed below.