TSC Ratings' Updates: Archer Daniels

Archer Daniels Midland is upgraded; AmSurg, Elron, Old Dominion and TransCanada are downgraded.
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The following ratings changes were generated on Thursday, Dec. 11.

We've upgraded

Archer Daniels Midland

(ADM) - Get Report

from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, increase in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins.

Revenue leaped by 65% since the same quarter a year ago, outpacing the industry average of 35.7% growth and boosting EPS. ADM's debt-to-equity ratio is somewhat low at 0.63 and is less than that of the industry average, implying a relatively successful effort in the management of debt levels. The company also maintains an adequate quick ratio of 1.17, which illustrates the ability to avoid short-term cash problems. Net income growth of 138.1% from the same quarter one year ago has significantly exceeded that of the

S&P 500

and the food products industry. Net operating cash flow has significantly increased by 486.77% to $4,680.00 million when compared with the same quarter last year, but cash flow growth rate is still lower than the industry average growth rate of 521.62%.

We've downgraded

AmSurg

(AMSG)

, which engages in the development, acquisition, and operation of ambulatory surgery centers, from buy to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock has had a decline in price during the past year.

Revenue rose by 18.1% since the same quarter a year ago, outpacing the industry average of 3.7% growth and boosting EPS. AmSurg's current debt-to-equity ratio, 0.42, is low and is below the industry average, implying successful management of debt levels. The company also maintains a quick ratio of 2.64, which clearly demonstrates the ability to cover short-term cash needs. Net operating cash flow has slightly increased to $23.36 million, or 1.16% when compared with the same quarter last year. AmSurg's 38.3% gross profit margin is strong, though it has decreased from the same period last year. The company's net profit margin of 8.2% compares favorably with the industry average.

Shares are down 19.3% on the year, in part reflecting the market's overall decline. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time

We've downgraded technology provider

Elron Electronic Industries

(ELRN)

from hold to sell, driven by its feeble growth in its earnings per share, disappointing return on equity and generally disappointing historical performance in the stock itself.

EPS declined by 14.5% in the most recent quarter compared with the same quarter last year. During the past fiscal year, Elron swung to a loss, reporting -$1.27 vs. 9 cents in the prior year. Return on equity has greatly decreased, a signal of major weakness. On the basis of ROE, Elron underperforms both the S&P 500 and the diversified financial services industry. Net income is down 17.3% since the same quarter a year ago. Elron's gross profit margin of 57.4% is rather high, though it has decreased significantly from the same period last year. Its net profit margin, however, significantly underperformed the industry average.

Shares are down 86.1% on the year, underperforming the S&P 500. The fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

We've downgraded multiregional motor carrier

Old Dominion Freight

(ODFL) - Get Report

from buy to hold. Strengths include its increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.

Net income increased by 16.7% compared with the same quarter a year ago, outperforming the S&P 500 but underperforming the road and rail industry. Revenue increased 14.5%, compared with the industry average of 21.5%, and EPS increased. Net operating cash flow has increased to $50.02 million, or 38.14% when compared with the same quarter last year, but Old Dominion's cash flow growth rate is still lower than the industry average growth rate of 61.9%. The company's gross profit margin of 15.5% is rather low, though it has increased from the same period last year. The 5.6% net profit margin trails the industry average. ROE has slightly decreased, implying a minor weakness. On the basis of ROE, Old Dominion underperformed the industry average but outperformed the S&P 500.

We've downgraded energy infrastructure provider

TransCanada

(TRP) - Get Report

from buy to hold. Strengths include its expanding profit margins, growth in earnings per share and notable return on equity. However, as a counter to these strengths, we also find weaknesses including generally poor debt management, weak operating cash flow and a decline in the stock price during the past year.

TransCanada's gross profit margin of 49% is strong, having increased from the same quarter last year. Its net profit margin of 18.2% is above the industry average. EPS have improved by 11.7% in the most recent quarter compared with the same quarter a year ago. During the past fiscal year, it increased its bottom line by earning $2.30 vs. $2.14 in the prior year. ROE has improved slightly, which can be construed as a modest strength in the organization. On the basis of ROE, TransCanada underperformed the oil, gas and consumable fuels industry and outperformed the S&P 500. Net operating cash flow has declined marginally to $825 million, or 1.07% when compared with the same quarter last year. The company's debt-to-equity ratio of 1.5 is quite high overall and when compared with the industry average, suggesting that the current management of debt levels should be re-evaluated. TransCanada also has a quick ratio of 0.54, which demonstrates the lack of ability of the company to cover short-term liquidity needs.

All ratings changes generated on Dec. 11are listed below.

Ticker

Company

Current

Change

Previous

ADM

Archer Daniels Midland

BUY

Upgrade

HOLD

AMSG

AmSurg

HOLD

Downgrade

BUY

ELRN

Elron Electronic Industries

SELL

Downgrade

HOLD

GSIG

GSI Group

SELL

Downgrade

HOLD

HYDI

Hydromer

SELL

Downgrade

HOLD

ODFL

Old Dominion Freight

HOLD

Downgrade

BUY

OPTI

Opti

FROZEN

Downgrade

HOLD

TRP

TransCanada

HOLD

Downgrade

BUY

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.