Stock Upgrades, Downgrades From TheStreet.com Ratings

Foundation Coal, United Stationers, Diana Shipping upgraded; Arbitron, Xenoport downgraded.
Author:
Publish date:

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. 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 were made on Feb. 19.

Foundation Coal

(FCL)

, a mining company, has been upgraded to buy. For the fourth quarter, the company posted profit of $9.9 million, or 21 cents a share, up from a loss of $21.9 million, or 48 cents a share, a year ago. The company has established a trend of earnings growth that we feel should continue. For the full year 2008, the market predicts an EPS improvement to $1.50 from 70 cents in 2007.

Revenue increased 4.7% year over year, a rate that trails the industry average. Foundation's gross profit margin of 24% is rather low, but has increased significantly year over year. Its net profit margin of 2.7% trails the industry average.

Powered by strong earnings growth, shares have surged 61% over the past year, outperforming the

S&P 500

. The rise has made the stock more expensive than others in its industry, giving it a price-to-earnings ratio (P/E) of 72.09. We feel, however, that other strengths justify the higher price. Foundation Coal had been rated hold since Dec. 11.

United Stationers

(USTR)

, a wholesale distributor of business products in the U.S., has been upgraded to buy. For the fourth quarter, the company announced earnings of $28.3 million, or $1.12 a share, compared with $33.6 million, or $1.10 a share, a year ago. Reflecting strong earnings growth, the stock's rise over the past year has outpaced the S&P 500. We believe there is still upside potential despite the impressive run.

United Stationers' debt-to-equity ratio of 0.79 is less than that of the industry average. However, with a quick ratio of 0.68, the company may have a problem covering short-term cash needs. With a P/E of 14.8, the company's shares are cheaper than those of its peers. United Stationers had been rated hold since Jan. 16.

Diana Shipping

(DSX) - Get Report

, a dry-bulk shipper, has been upgraded to hold. In the fourth quarter, Diana posted income of $36.4 million, or 49 cents a share, vs. $19.4 million, or 37 cents a share, in 2006. Revenue increased over the same period 67% to $58.9 million.

Diana's debt-to-equity ratio is very low at 0.12, implying successful management of debt levels. Net operating cash flow has increased 102% year over year to $50.6 million. Return on equity also grew to 16.8% from 11.2% a year ago. This is a clear sign of strength within the company. With a P/E of 14.39, the stock is cheaper than the industry average. Diana Shipping had been rated sell since Aug. 7.

Arbitron

(ARB)

, a media and marketing information provider, has been downgraded to hold. In the fourth quarter, Arbitron announced income of $3.7 million, or 14 cents a share, vs. $4.9 million, or 17 cents a share, a year ago. The company's debt-to-equity ratio is very low at 0.25, indicating successful management of debt levels.

At 39%, Arbitron's gross profit margin is quite strong. However, its net profit margin of 4.6% trails the industry average. Shares have slipped 9.2% in the past year, thanks in part to the general market trend and declining EPS results.

Looking ahead, we do not see anything to indicate a reverse in this decline. Even though the stock price has fallen, it still sports a P/E of 30.62, making it more expensive than others in its industry. Arbitron had been rated buy since Oct. 31.

Xenoport

(XNPT)

, a biopharmaceutical company, has been downgraded to sell. For the fourth quarter, the company swung to a profit of $2.5 million, or 9 cents a share, from a loss of $18.6 million, or 76 cents a share, in 2006, continuing a pattern of positive EPS growth over the past two years. However, for the full year 2008, the market expects a contraction in EPS to a loss of 22 cents, vs. a gain of $1.07 in 2007.

At 1.1%, Xenoport's gross profit margin is currently extremely low. In addition, the company's net profit margin of 9.5% trails the industry average. Shares have climbed 102% over the past year. This sharp appreciation is one of the reasons investors should seek opportunities elsewhere; with a P/E of 53.16, the stock is far more expensive than the industry average. Xenoport had been rated hold since Aug. 29.

Additional ratings changes from Feb. 19 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

ANST

ANSOFT CORP

Upgrade

Buy

Hold

ARB

ARBITRON INC

Downgrade

Hold

Buy

BSQR

BSQUARE CORP

Upgrade

Buy

Hold

CMD

CRITICARE SYSTEMS INC

Upgrade

Buy

Hold

CRIS

CURIS INC

Upgrade

Hold

Sell

NLS

NAUTILUS INC

Downgrade

Sell

Hold

ENZN

ENZON PHARMACEUTICALS INC

Downgrade

Sell

Hold

ICUI

ICU MEDICAL INC

Downgrade

Hold

Buy

INMD

INTEGRAMED AMERICA INC

Downgrade

Hold

Buy

IAAC

INTERNATIONAL ASSETS HLDG CP

Upgrade

Hold

Sell

MMR

MCMORAN EXPLORATION CO

Upgrade

Hold

Sell

MERC

MERCER INTL INC

Downgrade

Sell

Hold

MDP

MEREDITH CORP

Downgrade

Hold

Buy

MTSC

MTS SYSTEMS CORP

Downgrade

Hold

Buy

RMTR

RAMTRON INTERNATIONAL CORP

Upgrade

Buy

Hold

TRT

TRIO-TECH INTERNATIONAL

Downgrade

Hold

Buy

USTR

UNITED STATIONERS INC

Upgrade

Buy

Hold

NPO

ENPRO INDUSTRIES INC

Upgrade

Hold

Sell

GPK

GRAPHIC PACKAGING CORP/DE

Downgrade

Sell

Hold

KFED

K-FED BANCORP

Downgrade

Sell

Hold

FCL

FOUNDATION COAL HOLDINGS INC

Upgrade

Buy

Hold

ANR

ALPHA NATURAL RESOURCES INC

Upgrade

Buy

Hold

DSX

DIANA SHIPPING INC

Upgrade

Hold

Sell

XNPT

XENOPORT INC

Downgrade

Sell

Hold

DCT

DCT INDUSTRIAL TRUST INC

Initiated

Sell

CAST

CHINACAST EDUCATION CORP

Downgrade

Hold

Buy

This article was written by a staff member of TheStreet.com Ratings.