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.
, an industrial conglomerate, has been upgraded to buy. The company has experienced an increase in net income, EPS and revenue growth, notable return on equity and expanding profit margins. These strengths are expected to outweigh the company's generally poor debt management.
Third-quarter profit increased 14% to $5.54 billion, while EPS increased 8.7% 54 cents a share. GE has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. Revenue rose 12% to $42.5 billion, short of the industry average of 14.7%. The company recently forecast 2008 earnings growth of at least 10%. General Electric had been rated hold since August.
Starwood Hotels & Resorts Worldwide
, a hotel and leisure company, has been downgraded to hold. While Starwood has enjoyed revenue growth, reasonable valuation levels and good cash flow from operations, it has also struggled with deteriorating net income, poor debt management and a disappointing stock performance.
Third-quarter earnings dropped 17% to $129 million, or 61 cents a share. Adjusted earnings totaled $143 million, or 68 cents a share, beating Wall Street's estimate of 65 a share. Revenue climbed 6% to $1.54 billion. Starwood said last month that it may buy back up to $1 billion in stock and increased its annual divided by 7% to 90 cents. Starwood Hotels & Resorts Worldwide had been rated buy since December 2005.
Movie rental company
has been downgraded to sell. The company has been struggling with deteriorating net income, disappointing return on equity, weak operating cash flow, generally weak debt management and generally disappointing historical stock performance.
Blockbuster posted a wider third-quarter loss of $37.8 million, or 20 cents a share, compared with a loss of $27.5 million, or 15 cents a share, a year ago. Return on equity has greatly decreased from a year ago. The stock price has tumbled by about 43.47% over the last year. While the stock's sharp decline is a positive for future investors, making it cheaper than most other stocks in its industry, TheStreet.com Ratings believes that because of other concerns the stock is still not a good buy right now. Blockbuster had been rated hold since January.
( WINN), a food retailer, has been initiated with a hold rating. While the company's strengths can be seen in several areas, such as its notable return on equity, revenue growth and solid stock price performance, profit margins have been poor overall.
Winn-Dixie Stores reported a narrower fiscal first-quarter loss of $790,000, or 1 cent a share, compared with a loss of $24.6 million, or 17 cents a share a year ago. Wall Street was expecting Winn-Dixie to post a loss of 23 cents a share. The company has demonstrated a pattern of improving EPS over the past two years, but TheStreet.com Ratings anticipates underperformance relative to this pattern in the coming year. Revenue increased about 1% to $1.62 million.
, an aerospace supplier, has been upgraded to buy. The company has experience good cash flow from operations, a solid stock price performance, and growth in revenue, EPS, and net income. These strengths are expected to outweigh the company's low profit margins.
Fiscal first-quarter earnings increased 29% to $15.2 million, or 36 cents a share. The company has demonstrated a pattern of positive EPS growth over the past two years and this trend is expected to continue. Revenue increased 27% to $306 million. The stock's price rise over the last year has driven it to a level where it is somewhat expensive compared with the rest of its industry, but the other strengths this company displays appear to justify these higher price levels. AAR had been rated hold since May 2006.
Bank of America
, a financial services company, has been downgraded to hold. The company's strengths can be seen in several areas, such as its attractive valuation levels, good cash flow from operations and expanding profit margins. However, Bank of America is also struggling with generally poor debt management, disappointing return on equity and a disappointing stock performance.
Third-quarter net income totaled $3.7 billion, or 82 cents a share, down from $5.42 billion, or $1.18 a share, a year ago. Revenue slipped 12% to $16.3 billion. The company's current return on equity was down slightly from the same quarter one year prior. Bank of America recently said it expected fourth-quarter results to be disappointing because of write-downs and lower trading revenue. Bank of America had been rated buy since August.
( AGP), a health insurer, has been downgraded to hold. While the company maintains a largely solid financial position with reasonabledebt levels and growth in EPS and revenue, it is also marked by poor profit margins and weak operating cash flow.
Third-quarter earnings increased 27% from a year ago to $31.2 million, or 58 cents a share. Revenue surged 46% to $1.03 billion, greatly exceeding the industry average of 1.1%. Amerigroup increased its 2007 forecast to between $2.12 to $2.14 a share, from the previous range of $2 to $2.10 a share. Wall Street is looking for profit of $2.07 a share.
Medicare reform should be a boom to the industry, from managed care to clinical laboratories, allowing companies to make inroads into an historically sluggish arena. Such a scenario, coupled with other factors such as the economic backdrop and job growth, should continue to affect enrollment levels. Amerigroup had been rated buy since August.
Hertz Global Holdings
, a rental car company, has been initiated with a sell rating. The company's weaknesses can be seen in several areas, such as its generally disappointing stock performance, generally weak debt management and weak operating cash flow.
Third-quarter profit climbed 51% from a year ago to $162.7 million, or 50 cents a share, while revenue jumped 9% to $2.45 billion. The stock has slipped about 9.30% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, there does not seem to be anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Moreover, despite the past decline, the stock is still selling for more than most others in its industry.
The road and rail industry is extremely sensitive to the overall health of the economy. In 2004 and 2005, real GDP growth was roughly 4.2% and 3.6% respectively, and the industry benefited as a result. Looking forward, the threat of inflation and stagnant real wages could be concerns.
Weight Watchers International
, a diet and weight management services company, has been downgraded to hold. Although the company has experienced robust revenue and EPS growth and expanding profit margins, it has also struggled with a disappointing stock performance and unimpressive growth in net income.
Third-quarter profit dipped 2% from a year ago to $49.5 million, or 62 cents a share, while revenue rose 19% to $337.5 million. In its most recent trading session, Weight Watchers closed at a price level that was not very different from its closing price a year ago. This is probably due to its weak earnings growth as well as other factors. The fact that the stock is now selling for less than others in its industry is not reason enough to justify a buy rating at this time. Weight Watchers International had been rated buy since December 2005.
, an integrated energy company, has been upgraded to buy. The company's strengths can be seen in several areas, such as its solid stock price performance, impressive record of EPS growth, revenue growth, attractive valuation levels and notable return on equity. These strengths should outweigh the company's generally poor debt management.
Third-quarter earnings increased 19% over a year ago to $461.2 million, or $2.30 a share, while revenue rose 1.1% to $3.29 billion. The company has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. The stock is higher than it was a year ago and although other factors naturally played a role, the company's strong earnings growth was a key factor. As for the future direction of the stock, even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential. Entergy had been rated hold since January.
Additional ratings changes are listed below.