Each business day, 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
( BSC) has been downgraded to a hold from a buy. Its third-quarter revenue increased by 4.9% compared with the same period last year, however this trailed the industry average of 29.3%. The company also shows attractive valuation levels and good cash flow from operations.
However, Bear Stearns' debt-to-equity ratio of 17.61 is very high and above that of the industry average, implying that there is very poor management of debt levels within the company. Its earnings fell 61.59% to $1.16 per share in the third quarter compared with $3.02 a share in the same period last year, and its return on equity decreased over the same timeframe. This latter figure suggests a minor weakness in the organization. Bear Stearns had been rated a buy since November 2005.
, which offers financial services to retail and institutional customers, has been downgraded to sell from hold. Its stock has tumbled by 84.71% in the last 12 months, and although it is down sharply from a year ago, it cannot be tagged as cheap and attractive. Based on its current price in relation to earnings, E-Trade is still more expensive than most of its industry.
The company's third-quarter net income swung to a loss of $58.45 million compared with a $153.25 million during the same period last year. Its gross profit margin came in at 28.10% for the quarter, having decreased significantly from the same period last year, and its net profit margin of -5.60% is significantly below that of the industry average. E-Trade had been rated a hold since August 2007.
has been downgraded to a sell from a hold. The company has experienced a decline in earnings over the last two years, a trend TheStreet.com Ratings expects will continue in the coming year. Over the next year, the market expects a 46.7% contraction in earnings, to $1.46 per share vs. $2.74 a share.
McClatchy's stock price has fallen by 64.93% in the last 12 months, a decline that has made it cheaper (in proportion to its earnings over the past year) than most stocks in its industry. However, it is still not a good buy right now due to other concerns, which include disappointing return on equity and deteriorating net income. McClatchy had been rated a hold since February 2006.
Diversified manufacturing and service company
has been downgraded to a sell from a hold. The company's fourth-quarter net income significantly underperformed that of both its industry and the
, falling to $181 million from $1.27 billion in the fourth quarter of fiscal 2006.
It has also reported declining EPS results in the past two years, in addition to disappointing return on equity and weak operating cash flow. Tyco's stock price has fallen by 67.49% in the last 12 months. The price decline could be one of the factors that make it attractive down the road; right now, however, is too soon to buy. Tyco had been rated a hold since July 2007.
Tractor Supply Co.
has been downgraded to a hold from a buy. The company's third-quarter revenue increased 12.51% compared with the same period last year, exceeding the industry average of 11.9%. Tractor Supply also demonstrates a notable return on equity. Its debt-to-equity ratio of 0.16 is below that of the industry average, implying that there has been very successful management of debt levels.
However, its quick ratio of 0.06 is weak and shows a lack of ability to pay for short-term obligations. The company's third-quarter earnings of 44 cents per share were unchanged on the year, and it has reported somewhat volatile earnings recently.
TheStreet.com Ratings believes it is poised for EPS growth in the coming year. Its stock price is down by 20.96% in the last 12 months, and looking ahead, there's little in the company's number to indicate that the one-year trend will reverse. Naturally, a bull or bear market could sway the movement of the stock. Tractor Supply had been rated a buy since February 2007.