Each business day, TheStreet.com Ratings compiles a list of the top five stocks in one of five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap - based on data from the close of the previous trading session. Today, large-cap stocks are in the spotlight.
These are stocks of companies with market capitalizations of over $10 billion that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 62 factors. In addition, the stocks must be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. The stocks are ordered by their potential to appreciate.
Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.
primarily operates and franchises McDonald's restaurants. We've ated it a buy since March 2004, based on strengths such as its expanding profit margins and growth in net income, revenue and earnings per share.
On Oct. 22, the company reported that global comparable sales growth of 7.1% year over year fueled strong results in the third quarter of fiscal 2008. Revenue increased 6.2% when compared to the prior year's quarter. Although this trailed the industry average of 23.2%, it appears to have led to EPS growth. EPS improved 26.5%, rising from 83 cents in the third quarter of fiscal 2007 to $1.05 in the most recent quarter. Although McDonald's reported earnings have been somewhat volatile recently, we feel that it is poised for EPS growth in the coming year. Net income increased by 11.2% when compared to the same quarter a year ago. In addition, we consider the company's 37.7% gross profit margin to be strong, especially as it has managed to decrease from the same period last year and compares favorably to the industry average of 19%.
Management was pleased with its reported higher margin dollars, comparable sales, and a double-digit operating income increase. The company plans to continue its focus on disciplined financial practices in order to continue driving strong financial performance in the future. Although no company is perfect, we do not currently see any significant weaknesses that are likely to detract from McDonald's generally positive outlook.
is a biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases worldwide. We upgraded it to a buy in October 2008.
For the third quarter of fiscal 2008, revenue increased 29.5% to $1.37 billion from $1.06 billion a year ago due to higher product sales. Product sales surged 39.1% to $1.3 billion from $961.9 million, driven by strong growth of antiviral product sales (these in turn make up the most significant portion of overall revenue for the company). Royalty revenue plunged 72.4% to $25.2 million from $91 million, hurt by decreased Tamiflu royalties from Roche. Contract and other revenue spiked 29.6% to $7.6 million from $5.9 million a year ago. Margins were squeezed, however, as cost growth outpaced that of revenue. EPS rose from 42 cents in the third quarter of fiscal 2007 to reach 52 cents in the most recent period, an increase of 23.8%.
During the quarter under review, the U.S. Food and Drug Administration granted marketing approval to Viread for the treatment of chronic hepatitis B. The FDA refused to approve the inhaled version of aztreonam lysine and asked the company to conduct another study. Gilead also announced it intends to repurchase $750 million of its shares on an accelerated basis under a $3.00 billion share repurchase program announced in October 2007. Recently,
applied to the US FDA for permission to make a generic version of Gilead's HIV drug, Truvada. Gilead responded with a patent infringement lawsuit that can halt generic entry for a period of up to 30 months. Investors should be aware that this and other patent-related threats can pose a significant operational risk to the company's prospects, and are always situations that require monitoring. Other risks include any other regulatory or legal affairs, as well as any government policies that are considered unfavorable to drug makers.
is an Atlanta-based energy company that engages in the generation, transmission, distribution, and sale of electricity in the southeast U.S. We've rated a buy since August 2004 on the strength of its revenue and net income growth.
Despite challenges from the economy and weather, the company reported positive earnings results for the third quarter of fiscal 2008. Its revenue growth of 12.3% year over year slightly outpaced the industry average. Net income growth also increased, rising 3.1% from $772.5 million in the third quarter of fiscal 2007 to $796.6 million in the most recent quarter. Although Southern Company has had somewhat volatile earnings recently and reported flat earnings for the third quarter, we feel that it is poised for earnings per share growth in the coming year. The company reported that it earned $1.01 per share, excluding the impact of synthetic fuel investments. Its current debt-to-equity ratio is somewhat high at 1.3, but this is still below the industry average, suggesting that its debt level is acceptable within the electric utilities industry.
Management stated that the company remains on track to meet its financial and operational goals for the year. Although the company is currently trading at a premium valuation compared to most other stocks in its industry, we feel that its overall strengths outweigh this slight negative.
is a global educational services company. We upgraded our rating on Apollo to a buy in July 2008 based on some notable strengths, such as its robust revenue growth, solid stock price performance, impressive record of EPS growth, expanding profit margins and good cash flow from operations.
For the first quarter of fiscal 2009, the company reported that its revenue rose by 24.4% year-over-year, slightly outpacing the industry average of 18.8% growth. This growth appears to have helped boost Apollo's earnings per share, which improved 34.9% in the most recent quarter when compared to the first quarter of fiscal 2008. We feel that the trend of positive EPS growth over the past two years should continue. Net operating cash flow increased by 83.2% in the first quarter, rising to $380.8 million. In addition, net income increased from $139.9 to $180.4 over the past year.
Management stated that Apollo benefitted in the first quarter from investments made over the past several years. The company believes that the current economy is most likely having a positive effect on its business, as evidenced by year-end 2008 momentum carrying into fiscal 2009. With a strong balance sheet and strong operational and academic teams in place, management is optimistic about Apollo's outlook going forward. While we find the company's return on equity somewhat disappointing, we believe the strengths detailed above outweigh any potential weakness at this time.
Medco Health Solutions
is one of the nation's largest pharmacy benefit managers, providing sophisticated traditional and specialty pharmacy benefit programs and services for clients, members of client-funded benefit plans, and individual patients. We upgraded it to a buy rating in December 2008, based on such strengths as its growth, efficiency, and solvency.
For the third quarter of fiscal 2008, the company reported revenue growth of 15% year over year, boosted in part by record specialty pharmacy revenues of over $2 billion. This growth appears to have helped boost EPS, which improved 48.7% when compared to the same quarter a year ago. Net income also increased, rising 37.7% from $214.9 million to $295.7 million over the past year. We are encouraged by a trend of positive EPS over the past two years. Net operating cash flow surged 327.3% in the third quarter. In addition, a debt-to-equity ratio of 0.8 implies that Medco has been somewhat successful at managing its debt levels, although a relatively weak quick ratio of 0.8 shows the potential for future problems in this area.
Looking ahead, management announced that Medco continues to see strong growth across its businesses. Based on its third quarter results, the company reaffirmed its guidance for full-year 2008, including GAAP diluted EPS of $2.10 to $2.13 and diluted EPS of $2.30 to $2.33. For full-year 2009, Medco anticipates diluted EPS in the range of $2.67 to $2.77. The stock itself has had lackluster performance recently, but we feel that the strengths detailed above outweigh this weakness.
Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks. 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 should be part of an investor's overall research.