TSC Ratings' Updates: Broadcom

Broadcom and Western Union upgraded; Jos. A. Bank Clothiers and Wachovia downgraded.
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Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stocks total return potential over a 12-month period, including both prices 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.

The following ratings changes were generated on July 23.

Semiconductor developer

Broadcom

has been upgraded to buy. Its revenues rose 33% since the same quarter last year, putting it far ahead of the industry average of 8%. The company also has no debt to speak of, which can be considered a favorable sign. A quick ratio of 2.92 demonstrates an ability to cover short-term cash needs. Net income increased 293% over the same quarter one year prior, significantly exceeding that of the S&P 500. In addition, net operating cash flow has increased by 36% to $247 million compared with last year. Broadcom had been rated hold since February 9, 2007.

Western Union

(WU) - Get Report

, which provides money transfer and bill payment services, has been upgraded to hold. Its revenue growth outpaces the industry average, with revenues rising by 12% since the same quarter a year ago. The company also has a strong gross profit margin of 45%, although the net profit margin of 17% trails the industry average. Based on net income growth the company has underperformed the IT Services industry but still outpaces the S&P 500. Compared with the same quarter one year prior the net income increased by 13%. Western Union had been rated sell since April 23.

Men's clothing retailer

Jos. A Bank Clothiers

(JOSB)

has been downgraded to hold. Its revenue increased 12% which was higher than the industry average and also improved EPS by 17% in the most-recent quarter compared with one year ago. Additionally, this pattern of positive EPS growth has been demonstrated over the past two years. The company has no debt to speak of, but the quick ratio of 0.66 shows a potential problem is covering short-term cash needs. The current return on equity has also decreased from the same quarter one year prior, showing a minor weakness in the organization. Finally, net operating cash flow has decreased by 102% compared with the same quarter last year. Jos. A Bank had been rated buy since July 1.

Financial holding company

Wachovia

(WB) - Get Report

has been downgraded to sell. The company has experienced a steep decline in earnings per share in both the most-recent quarter as well as over the past two years. During the past fiscal year it also reported lower earnings of $3.30 vs. $4.61 in the prior year. The company has also significantly underperformed when compared with the S&P 500, with net income decreasing 470% compared with the same quarter one year ago. A net profit margin of -73% is also much lower than the industry average. Wachovia had been rated hold since November 12, 2007.

Blackstone Group

(BX) - Get Report

, which provides worldwide asset management and financial advisory services, had ratings initiated at sell. The company has experienced a steep decline in EPS compared with the same quarter last year and for the next year the market is expecting a contraction of 94% in earnings. In addition, compared with the same quarter last year net income has decreased by 122% to -$250 million. Compared with other companies in the industry, Blackstone's return on equity is below that of the average as well as the S&P 500.

Additional ratings changes from July 23 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

AGO

Assured Guaranty Ltd.

Downgrade

Sell

Hold

BRCM

Broadcom Corporation

Upgrade

Buy

Hold

BX

Blackstone Group LP

Initiated

Sell

CRI

Carter's Inc.

Upgrade

Hold

Sell

CYPB

Cypress Bioscience Inc.

Upgrade

Hold

Sell

EPIQ

Epiq Systems Inc.

Upgrade

Buy

Hold

HERO

Hercules Offshore Inc.

Upgrade

Buy

Hold

HITT

Hittite Microwave Corp.

Upgrade

Buy

Hold

ITC

ITC Holdings Corporation

Upgrade

Buy

Hold

JOSB

Jos. A Bank Clothiers Inc.

Downgrade

Hold

Buy

KEY

KeyCorp

Downgrade

Sell

Hold

MFB

Maidenform Brands Inc.

Upgrade

Buy

Hold

TWER

Towerstream Corporation

Initiated

Sell

WB

Wachovia Corporation

Downgrade

Sell

Hold

WU

Western Union Company

Upgrade

Hold

Sell

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