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.
Warehouse club operator
BJ's Wholesale Club
has been upgraded to buy. The company has enjoyed revenue growth, solid stock price performance, reasonable valuation levels, good cash flow from operations and an increase in net income. These strengths should outweigh its somewhat disappointing return on equity. BJ's reported second-quarter earnings of $36.3 million, or 55 cents a share, up from $26.4 million, or 39 cents a share, a year earlier. Powered by strong earnings growth of 30% and other factors, the stock has surged 26.3% over the past year. Revenue increased to $2.29 billion from $2.12 billion a year ago. BJ's should continue to move higher even though it has already seen a nice gain in the past year. The company had been rated hold since August.
has been upgraded to buy. The company has a largely solid financial position with reasonable debt levels. It has enjoyed an increase in net income, revenue growth, expanding profit margins and solid stock price performance. TheStreet.com Ratings believes these strengths outweigh the company's somewhat disappointing return on equity. Semtech recently posted a 7% increase in second-quarter income to $9 million, or 13 cents a share, with adjusted income totaling $12.5 million, or 18 cents a share. Sales climbed 3.3% to $67 million. The company's gross profit margin is rather high at 59.2%, up from the same quarter a year ago. Nevertheless, its net profit margin of 13.50% trails the industry average. Semtech had been rated hold since August.
( AVCI), a networking technology company, has been upgraded to buy. The company maintains a largely solid financial position with reasonable debt levels and has enjoyed growth in earnings per share, net income and revenue. Avici recently reported a 53% increase in second-quarter earnings to$12.1 million, or 82 cents a share. Adjusted earnings came to $12.7 million, or 86 cents a share. Revenue rose 17% to $29.6 million. Avici forecast full-year revenue of $110 million to $125 million, well above its previous guidance of $50 million to $60 million. The company has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. Avici Systems had been rated hold since May.
North American Palladium
, a Canadian mining company, has been downgraded to sell. The rating is based on several factors. One of the most important factors has been the company's poor profit margins. The gross profit margin is currently extremely low, coming in at 13.10%, and its net profit margin of negative 20.40% significantly underperformed the industry average. The company recently reported a second-quarter net loss of C$9.1 million or 17 cents a share. This compares to a net loss of C$11.3 million or, 22 cents a share, a year ago. Revenue totaled C$44.5 million, up from C$35.5 million a year ago. North American Palladium had been rated hold since May.
Star Gas Partners
, a home heating oil distributor and services provider, has been upgraded to hold. The company's strengths can be seen in several areas, such as its revenue growth, a largely solid financial position with reasonable debt levels and solid stock price performance. However, profit margins have been poor overall. Star Gas partners' gross profit margin is rather low at 19.70%, and its net profit margin of negative 3.70% significantly underperformed the industry average. Star Gas Partners recently reported a third-quarter loss of $8.3 million, or 11 cents a unit, from $34.1 million, or 53 cents a unit. Sales increased 16% to $222.5 million, slightly outpacing the industry average of 14.8%. Star Gas Partners had been rated sell since September 2005.
Additional ratings changes are listed below.