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.
However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could impact the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.
For those reasons, we believe a rating alone cannot tell the whole story and should constitute part of an investor's overall research.
, a casual dining company, has been downgraded to hold. While the company has experienced revenue growth, reasonable valuation levels and good cash flow from operations, it has also contended with deteriorating net income, generally poor debt management and poor profit margins. Fiscal second-quarter profit slipped 30% from a year ago to $43.5 million, or 30 cents a share. The company, which operates the Olive Garden and Red Lobster chains, has reported somewhat volatile earnings recently, but it appears poised for EPS growth in the coming year. A revenue increase of 17% to $1.52 billion, higher than the industry average of 1.5%, does not appear to have trickled down to the company's bottom line, as shown by the EPS decline. Darden Restaurants had been rated buy since January 2006.
( FIC), a business analytics company, has been downgraded to hold. While the company has reported an impressive record of EPS growth, an increase in net income and reasonable valuation levels, the stock has had a generally disappointing performance in the past year. Fourth-quarter net income rose 28% from a year ago to $28.2 million, or 52 cents a share. Excluding items, the company earned 49 cents a share. The company has shown a pattern of EPS growth over the past year, and this trend is expected to continue. Revenue for the quarter totaled $207.2 million, compared with $207.3 million a year ago. Fair Isaac's stock share price has done very poorly compared with its price a year ago, falling 25%. In one sense, the stock's sharp decline from last year is a positive for future investors, making it cheaper than most other stocks in its industry. But TheStreet.com Ratings feels the stock is still not a good buy right now. Fair Isaac had been rated buy since July.
( ZRAN) has been downgraded to hold. The company maintains a largely solid financial position with reasonable debt levels by most measures, solid stock price performance and revenue growth. But return on equity has been disappointing, having slightly decreased from a year ago. Third-quarter revenue increased 13% to $146.4 million. Earnings for the quarter totaled $13.1 million, or 26 cents a share, compared with $1.9 million, or 4 cents a share, a year ago. Zoran has no debt to speak of, resulting in a debt-to-equity ratio of zero, which is considered a relatively favorable sign. Gross profit margin is rather high at 54%, and has increased from the year-ago quarter. Regardless of strong gross profit-margin results, the company's net profit margin of 9% trails the industry average. Zoran had been rated buy since November.
( GGL), a heating and air-conditioning products company, has been upgraded to hold. The company's strengths can be seen in multiple areas, such as revenue growth, stock price performance and EPS growth. However, profit margins have been poor overall. Third-quarter earnings increased 34% year over year to $43.1 million, or 61 cents a share. Revenue for the quarter increased 9% to $565.5 million. Powered by its strong earnings growth and other important factors, this stock has surged 43% over the past year. Although Goodman Global has had significant growth, the hold rating indicates that TheStreet.com Ratings does not recommend additional investment at this time. In November, private equity firm Hellman & Friedman received antitrust clearance to acquire the company for $25.60 a share. Goodman Global had been initiated with a sell rating in May.
Penn Virginia GP Holdings
, a coal and natural gas company, has been initiated with a sell rating. The company's weaknesses are visible in several areas, such as its unimpressive net-income growth and generally weak debt management. The company's third-quarter net income has significantly underperformed compared with the oil, gas and consumable fuels industry, tumbling 31% from a year ago to $8.9 million. EPS fell 43% in the most recent quarter, and this year the market expects an improvement in earnings. Revenue is down 1%, slightly underperforming the industry average of 3.1%. Currently, the company's debt-to-equity ratio of 1.59 is quite high overall and when compared with the industry average. Penn Virginia GP Holdings also maintains a poor quick ratio of 0.84, which illustrates an inability to avoid short-term cash problems. Return on equity is below the oil, gas and consumable fuels industry average.
Additional ratings changes are listed below.
This article was written by a staff member of TheStreet.com Ratings.