Top 5 Mid-Cap Stocks for June 4

Strayer, Quality Systems, Dollar Tree, Check Point Software and Tyler Technologies make the list.
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Each business day, TheStreet.com Ratings 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 we focus on mid-caps. These are stocks of companies that have market capitalizations of between $500 million and $10 billion that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.

The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They 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.

Strayer Education

(STRA) - Get Report

is a for-profit post-secondary education services corporation that offers a variety of academic programs through wholly-owned Strayer University. Our

buy rating

for Strayer has not changed since March 2003 and is based on a variety of strengths that include the company's growth and its favorable returns, along with a surge in enrollment and a largely solid financial position.

For the first quarter of fiscal 2009, Strayer's revenue growth of 28.2% year over year slightly outpaced the industry average growth of 19.9%. This growth was driven by increased student enrollments and a 5% increase in tuition fees since January 2009. Revenue growth seems to have helped expand the company's bottom line, as earnings per share improved 26.2% when compared with the same quarter last year. Net income also increased, rising to $29.05 million from $23.52 million a year ago. Strayer's gross profit margin improvement of 128 basis points is a further sign of strength. Higher earnings combined with a lower asset and equity base to help drive returns on assets and equity higher in the first quarter. Stayer has no debt to speak of, giving it a debt-to-equity ratio of zero, which we consider to be a favorable sign. In addition, a quick ratio of 1.47 indicates that the company should be able to avoid short-term cash problems.

Management stated that it was pleased with Strayer's first-quarter financial performance and the strong student enrollment for the spring term. Strayer announced that its first quarter revenue and earnings results were records for the company. However, the company faces challenges from a deteriorating cash balance. In addition, the company incurred higher costs related to support the increase in student enrollments and building the Strayer University brand, and these costs could restrict the company's financial performance going forward. Finally, the company's stock is trading at a premium valuation, but we feel that the strengths detailed above justify the higher price point at this time.

Quality Systems

(QSII)

develops and markets healthcare information systems that automate medical and dental practices, networks of practices such as physician hospital organizations, ambulatory care centers, community health centers and medical and dental schools. We have

rated Quality Systems a buy

since November 2001 due to its efficiency, solvency and growth in revenue and net income. Solid stock price performance also supports this rating.

For the fourth quarter of fiscal 2009, the company reported that its revenues rose 28.4% year over year, surpassing the industry average of 2.8% growth. Net income also increased in the fourth quarter, rising 1.3% from $11.25 million to $11.4 million. The company has reported somewhat volatile earnings recently, but we feel that it is poised for earnings per share growth in the coming year.

Compared with a year ago, Quality Systems' stock price has jumped 50.5%, exceeding the performance of the broader market during that time frame. Although this increase has driven the stock to a level that is relatively expensive compared to the rest of the industry, we feel that the company's strengths justify the higher price level at this time. While no company is perfect, we do not currently see any significant weaknesses that are likely to detract from the generally positive outlook for this company.

Dollar Tree

(DLTR) - Get Report

operates discount variety stores in the United States, under the store names Dollar Tree, Deal$, and Dollar Bills. Our

buy rating

for this stock has not changed since May 2008. The rating is supported by the company's solid stock price performance, largely solid financial position and growth in revenue, net income and earnings per share.

For the first quarter of fiscal 2009, Dollar Tree reported revenue growth of 14.2% year over year, which surpassed the industry average of 6.8%. EPS appears to have received a boost from this growth, as it improved 37.5% when compared to the same quarter a year ago. The company has demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income increased 38.5% in the first quarter, rising from $43.6 million a year ago to $60.4 million. Dollar Tree's debt-to-equity ratio is very low at 0.21, which implies that the company has successfully managed its debt levels.

Management stated it that is was pleased with the first quarter results, as increased customer traffic drove earnings and sales results beyond the company's previously stated guidance. Although almost any stock may fall in an overall down market, we consider this stock to have good upside potential in most other market conditions, despite the fact that it has already risen in the past year. The company may harbor some minor weaknesses, but we feel that they are unlikely to have a significant impact on Dollar Tree's future financial results.

Check Point Software Technologies

(CHKP) - Get Report

and its subsidiaries develop, market, and support Internet security solutions for enterprise and high-end networks, service providers, consumers and small and medium businesses. We

upgraded the stock to a buy

in January 2009. The buy rating is supported by the company's efficiency, solvency and growth in revenue and EPS.

For the first quarter of fiscal 2009, Check Point reported that it posted record revenues of $195 million, with revenue rising 1.8% year over year. This growth appears to have trickled down to the company's bottom line, as EPS improved 5.5% when compared to the same quarter a year ago. Net income also increased in the first quarter, rising 3.4% from $78.26 million to $80.92 million. The company's gross profit margin has increased from a year ago, currently coming in at 95.1%, which is very high. Check Point has no debt to speak of, which we consider to be a relatively favorable sign. In addition, the company's quick ratio of 2.94 indicates that it is clearly able to cover its short-term cash needs.

Management stated that Check Point's first quarter results provided a good start to fiscal 2009. The company believes that it will be able to continue to post increased revenues and EPS during the year. We find the company's return on equity to be somewhat disappointing, but feel that the strengths detailed above outweigh any potential weakness at this time.

Tyler Technologies

(TYL) - Get Report

provides integrated information management solutions and services for local governments in the United States, Canada, Puerto Rico, and the United Kingdom. It has been

rated a buy

since July 2005 because of its efficiency, solvency, expanding profit margins and growth in net income and revenue.

For the first quarter of fiscal 2009, Tyler reported revenue growth of 17.2% year over year. This was higher than the industry average of 8.9%, and appears to have helped boost EPS, which improved from 8 cents to 16 cents per share. Net income increased 92.1%, rising from $3.13 million to $6.01 million. The company has a strong gross profit margin of 45.9%, which has increased from the same quarter last year. Tyler's return on equity can also be considered a modest strength, as it has improved slightly from 13.73% to 15.61%. In addition, a very low debt-to-equity ratio of 0.07 implies that the company has managed its debt levels very successfully.

Management was pleased with Tyler's strong start to fiscal 2009, but did not make any changes to its previously announced 2009 guidance because of the current economic climate. Although the company shows weak operating cash flow, we feel that the strengths detailed above outweigh any potential weakness at this time.

Our quantitative rating, which can be viewed for any stock through our stock screener stock rating screener, 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.