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 affect 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 that it should be part of an investor's overall research.
The following ratings changes are from Feb. 13.
Old Dominion Freight
, a motor carrier, has been upgraded to buy. The company shows strong revenue growth and a solid financial position. These strengths outweigh subpar net income growth.
For the fourth quarter, Old Dominion posted revenue of $358.7 million, marking an increase of 12% over last year. On this revenue, the company reported income of $15.7 million, or 42 cents a share, down from $17.8 million, or 48 cents a share, a year ago. However, for 2008, the market expects full-year earnings of $2 a share, vs. $1.92 in 2007.
The company's current debt-to-equity ratio, 0.54, is lower than the industry average, implying successful management of debt levels. With a P/E of 15.60, the stock is slightly cheaper than the industry average. Old Dominion Freight had been rated hold since Nov. 27.
( SRVY), which provides Internet surveys and comparison shopping solutions, has been upgraded to buy on a solid fourth-quarter financial performance.
For the quarter, Greenfield Online's revenue surged 30% to $38.39 million from a year ago. Net income likewise grew 30% to $4.6 million.
In 2007, the company had a negligible amount of outstanding debt, while shareholders' equity grew 18% to $176.42 million. It also had a strong cash and equivalent balance of $58 million, up 57% year over year. This strong balance sheet provides the financial flexibility to exploit growth opportunities in the future.
Ongoing consolidation in the market research industry, especially among the company's clients, could mean loss of business. Also, declines in Internet traffic could hurt comparison shopping revenue. Any adverse changes in the regulatory framework and foreign exchange fluctuations are causes of concern. Greenfield Online had been rated hold since Feb. 1, 2007.
, which makes upholstered furniture, has been upgraded to hold. The company has a solid financial position, good cash flow from operations and notable return on equity. However, the stock has not performed well and the company exhibits poor net income and weak profit margins.
At 0.33, La-Z-Boy's debt-to-equity ratio lags the industry average, implying successful management of debt levels. The company also maintains a quick ratio of 1.26, which illustrates the ability to avoid short-term cash problems. For the second quarter of the company's fiscal 2008, net operating cash flow has increased 162% year over year to $14.28 million.
Over the past year, La-Z-Boy shares tumbled by 39%. For the second quarter, earnings per share are also down 217% from the same period last year. Although its share price is down sharply from a year ago, the stock is not cheap. It sports a price-over-earnings (P/E) ratio of 168, which dwarfs the industry average. La-Z-Boy had been rated sell since Aug. 29.
, an oil company, has been downgraded to hold. The company's strengths include its increase in net income and expanding profit margins. Weaknesses include disappointing return on equity, weak operating cash flow and feeble EPS growth.
For the fourth quarter, Newfield reported a net income increase to $313 million from $82 million a year ago. The company's gross profit margin is very high at 79%, and its net profit margin of 78% significantly outperformed the industry average.
Return on equity has greatly decreased year over year to 4.8% from 20% and trails the industry average. With a P/E of 38.72, the company's stock is more expensive than that of other companies in its industry. Newfield Exploration had been rated buy since TheStreet.com Ratings initiated coverage on Feb. 10, 2006.
, a provider of servicing and originations processing to the loan industry, has been downgraded to sell. The company's weaknesses can be seen in multiple areas, such as disappointing stock performance, weak return on equity and feeble EPS growth.Shares tumbled by 53% in the past year. This decrease could make the stock attractive down the road, but we feel it is not a good buy right now. For the fourth quarter, return on equity has decreased to 7% from 37% year over year, a signal of major weakness within the corporation.
For the quarter, Ocwen swung to a loss of $6.9 million, or 8 cents a share, from a profit of $13.9 million, or 20 cents a share, in 2006. Revenues also declined 14.5% year over year. Ocwen had been rated hold since Jan. 31, 2007.
Additional ratings changes from Feb. 14 are listed below.
SPORT SUPPLY GROUP INC
HANMI FINANCIAL CORP
NEWFIELD EXPLORATION CO
OCWEN FINANCIAL CORP
OLD DOMINION FREIGHT
STRATEGIC DIAGNOSTICS INC
CAROLINA BANK HOLDINGS INC
GREENFIELD ONLINE INC
AMERICAN OIL & GAS INC
This article was written by a staff member of TheStreet.com Ratings.