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.
Hamburger chain operator
Burger King Holdings
has been upgraded to a hold. While the company has experienced revenue growth, good cash flow from operations and notable return on equity, it has not been careful managing its balance sheet.
First-quarter profit climbed 23% from a year ago to $49 million, or 35 cents a share, while revenue increased 10% to $602 million. The company said private-equity firms TPG Capital, Bain Capital and Goldman Sachs Funds plan to sell 23 million shares on the public market. The firms, which took the company public last year, also plan to grant underwriters the option to buy an additional 3.45 million shares to cover over-allotments.
The debt-to-equity ratio of 1.23 is relatively high when compared with the industry average, suggesting a need for better debt level management. Burger King Holdings had been initiated with a sell rating in June.
, a pet-supplies retailer, has been downgraded to a hold. The company holds a largely solid financial position with reasonable debt levels, revenue growth and notable return on equity, but it is also marked by poor profit margins, a generally disappointing stock performance and unimpressive net income growth.
Third-quarter profit slipped 7% from a year ago to $29.5 million, or 23 cents a share, while revenue rose 8% to $1.12 billion. Current return on equity exceeded its ROE from a year ago, a clear sign of strength within the company.
Same-store sales, or sales at stores open at least a year, rose 1.4%. The gross profit margin is currently lower than what is desirable, coming in at 29.70%, and down from a year ago. The net profit margin of 2.60% also trails the industry average. PetSmart had been rated a buy since December 2005.
, an apparel, footwear and accessories retailer, has been downgraded to a hold. While the company holds a largely solid financial position with reasonable debt and valuation levels and revenue growth, it is also contending with deteriorating net income, disappointing stock performance and unsatisfactory return on equity.
The company swung to a second-quarter loss of $4.2 million, or 19 cents a share, compared with income of $5.9 million, or 24 cents a share, a year ago. (Genesco reports third-quarter results Nov. 29.) The results include expenses of 13 cents a share from the proposed merger with a subsidiary of
Revenue increased 8% to $328 million.
petitioned a Tennessee court last week to relieve it from its obligation to finance Finish Line's $1.5 billion merger buyout of Genesco. Current return on equity is lower than a year ago, a clear sign of weakness within the company. Genesco had been rated a buy since November 2005.
, an Internet infrastructure company, has been upgraded to a buy. The company maintains a largely solid financial position with reasonable debt and valuation levels, and growth in revenue, EPS and net income. These strengths outweigh the stock's lackluster performance.
Third-quarter profit rose 73% to $24.3 million, or 13 cents a share. Adjusted for some items, net income grew 49% year over year to $62.4 million, or 34 cents a share. Revenue grew 45% year over year to $161.2 million. Analysts surveyed by Thomson Financial had forecast earnings of 33 cents on revenue of $161 million.
This company has reported somewhat volatile earnings recently, but, TheStreet.com Ratings believes it is poised for EPS growth in the coming year. Although Akamai's debt-to-equity ratio of 0.16 is very low, it is currently higher than that of the industry average. Akamai Technologies had been rated a hold since October.
, a financial services company, has been downgraded to a hold. The company's strengths can be seen in several areas, such as its revenue growth, expanding profit margins and reasonable valuation levels.
However, Synovus has also struggled with a generally disappointing stock performance, unimpressive growth in net income and weak operating cash flow. Third-quarter earnings slipped 8% to $142.1 million, or 43 cents a share.
The company said recently that it recorded a $12 million charge connected to a settlement between Visa and
and third-quarter earnings were reduced by $7.1 million, or 2 cents a share. Net operating cash flow has decreased to $167.06 million or 43.2% from a year ago. Synovus Financial had been rated a buy since November 2005.
Additional ratings changes are listed below.