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.
Online travel company
has been upgraded to a buy from a hold. Its third-quarter earnings rose 88.23% year over year to 32 cents per share from 17 cents a share. This continued a pattern of positive EPS growth over the previous year. During the past fiscal year, Expedia increased its bottom line, earning 70 cents a share vs. 30 cents per share the year before. This year, the market expects earnings of $1.23 per share. On the back of strong earnings growth, its stock price has grown by 88.23% in the last 12 months. And while almost any stock can fall in a broad market decline, Expedia should continue to move higher despite having enjoyed a nice gain in the past year. Although the company may harbor some minor weaknesses, TheStreet.com Ratings feel they are unlikely to have a significant impact on results. Expedia had been rated a hold since November 2006.
, a seller of data management products, has been downgraded to a hold from a buy. The company's revenue rose 21.4% in the second quarter of its fiscal 2008 compared with the same period last year, outpacing the industry average of 3.3%. Its debt-to-equity ratio is very low at 0.19 and currently below the industry average, implying that there has been very successful management of debt levels. Network Appliance's return on equity improved to 17.27% in the quarter over 14.13% in the second quarter of fiscal 2007. This can be construed as a modest strength within the organization. However, its second-quarter net income fell by 3.65% compared with the same period last year, and the company demonstrated weak operating cash flow. In addition, its stock price is down by 39.90% over the last 12 months, and based on its current price in relation to its earnings, it is still more expensive than most of the other companies in its industry. Network Appliances was upgraded to a buy on Nov. 15, but reverts back to a hold based on its second-quarter results, which were reported on Nov. 19.
Suburban Propane Partners
distributes and markets propane, fuel oil and refined fuels. It has been downgraded to a hold from a buy. The company's losses widened to $1.02 per share in the fourth quarter of its fiscal 2007 from a loss of 66 cents a share in the year-ago quarter. Revenue fell by 23% in the same timeframe. Net operating cash flow fell 63.95% when compared with the same quarter last year. However, despite the company's volatile earnings over the past year, its stock price has gone up by 13.14% in the last 12 months. TheStreet.com Ratings see no conclusive evidence that warrants the purchase or sale of this stock. Suburban Propane Partners had been rated a buy since September 2007.
Watts Water Technologies
designs and manufactures water-safety and flow-control products. It has been downgraded to a hold from a buy. The company's third-quarter revenue increased by 4.7% compared with the same period last year, though this underperformed the industry average of 10.9%. Watts' debt-to-equity ratio of 0.51 is low, below the industry average, implying that there has been successful management of debt levels. It also has a quick ratio of 2.09, which demonstrates the ability of the company to cover short-term liquidity needs. However, the company's net income fell by 0.5% to $18.09 million in the third quarter compared with $18.19 million during the same period last year. In addition, its return on equity is significantly below that of the industry average and that of the S&P 500. Watts Water had been rated a buy since November 2005.
sells electronic design automation systems that test hardware and embedded systems software. It has been downgraded to a hold from a buy. The company shows strength in a number of areas, including an impressive record of EPS growth and compelling growth in net income and revenue. While it had a very high gross profit margin at the close of the second quarter of its fiscal 2008, the margin has decreased from the same period last year. In addition, its stock price has fallen by 34.47% during the past 12 months. That the stock has come down in price over the last quarter should not necessarily be interpreted as a negative; it could be one of the factors that may help make it attractive down the road. Right now, TheStreet.com Ratings believe it is too soon to buy. Mentor Graphics had been rated a buy since Oct. 15.
Additional ratings changes are listed below.
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