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 forecasted company earnings. Objective elements include volatility of past operating revenue, financial strength and company cash flows.
Some recent rating changes are highlighted below.
, a sporting goods direct marketer and retailer, has been downgraded to a hold from a buy. TheStreet.com Ratings feels the company's cash flow from operations has been weak overall. CAB's quick ratio, which measures noninventory assets against liabilities, is currently 0.6, suggesting there could be a problem covering short-term cash needs. The company's return on equity in the fourth quarter of fiscal 2006 was 11.7%, significantly below the specialty retail industry average. CAB had been rated a buy since March 2007.
Web search giant
has been downgraded to a hold from a buy. The company reported a decline in profits during the first quarter of fiscal 2007 due to higher operating costs and lower-than-expected revenue gains from its new advertising platform, known as Panama. Yahoo! had been rated a buy since April 2006.
has been downgraded to a hold from a buy. The company provides private mortgage insurance to the home mortgage lending industry in the U.S.. Earnings per share declined 40.1% in the first quarter of fiscal 2007. MGIC's gross profit margin also has decreased significantly over the past fiscal year.
These weaknesses seem to be reflected in the stock price, which has tumbled nearly 13% in 12 months. Investors might also be reacting to concerns about the thrift and mortgage finance sector as a whole, which many believe is vulnerable to the possibility of rising interest rates, a reduction in loan volume and an increase in delinquencies. MGIC had been rated a buy since April 2005.
has been upgraded to a buy from a hold. Revenue increased 13.8% in the first quarter of fiscal 2007 compared with the same quarter a year earlier. Lilly's gross profit margin is currently rather high at 78.2%. Although this company has reported somewhat volatile earnings recently, TheStreet.com Ratings feels it is poised for EPS growth in the coming year. Eli Lilly had been rated a hold since July 2005.
has been upgraded to a buy from a hold. The company has demonstrated a pattern of positive EPS growth over the past two years, including a 31.3% jump in the fourth quarter of fiscal 2006 compared to the same quarter a year ago. TheStreet.com Ratings expects this trend to continue. Gross profit margin and net operating cash flow also are on the rise. Gamco had been rated a hold since March 2006.
Additional ratings changes are listed in the table below.