TSC Ratings' Updates: Cadence - TheStreet

The following ratings changes were generated on Friday, Dec. 12.

We've downgraded

Allete

(ALE) - Get Report

, which engages in the generation, transmission, distribution and marketing of electrical power, 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, we also find weaknesses including disappointing return on equity, a decline in the stock price during the past year and poor profit margins.

Net income increased by 49.7% compared with the same quarter one year prior, rising from $16.5 million to $24.7 million and outperforming the

S&P 500

and the electric utilities industry. Revenue slight increased by 0.4%, underperforming the industry average of 9.7% but boosting EPS. Net operating cash flow has slightly increased to $47.10 million, or 2.16% compared with the same quarter last year, but Allete's cash flow growth rate is still lower than the industry average growth rate of 25.13%. Return on equity slightly decreased, implying a minor weakness in the organization and underperforming both the industry and the S&P 500.

Shares are down a sharp 27.8% on the year, though the broader market experienced a deeper plunge during the same time frame. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

We've downgraded

Cadence Design Systems

(CDNS) - Get Report

, which develops electronic design automation software and hardware for electronics companies worldwide, from hold to sell, driven by its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Net income hassignificantly decreased compared with the same quarter one year ago, falling from $72.73 million to -$169.07 million and underperforming the S&P 500 and the software industry. ROE also greatly decreased and underperformed the industry and the S&P 500, a signal of major weakness.Net operating cash flow has significantly decreased to -$1.78 million. EPS declined 379.2% in the most recent quarter compared with the same quarter last year, but during the past fiscal year, Cadence increased its bottom line by earning $1 vs. 47 cents in the prior year. For the next year, the market is expecting a contraction of 97% in earnings to 3 cents.

Shares are down 82.1% on the year, underperforming the S&P 500. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

We've downgraded

Dorchester Minerals

(DMLP) - Get Report

, which engages in the acquisition, ownership, and administration of producing and nonproducing natural gas and crude oil royalty, net profits and leasehold interests in the U.S., from buy to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we find that the stock has had a decline in price during the past year.

Revenue leaped by 66.4% since the same quarter a year ago, boosting EPS. Dorchester has a debt-to-equity ratio of zero and maintains a quick ratio of 30.32, which clearly demonstrates the ability to cover short-term cash needs. Its gross profit margin is currently very high at 93.9%, though it has decreased from the same period last year. Dorchester's net profit margin of 75.9% significantly outperformed the industry average.

Shares are down 23.7%, in part due to the market's overall decline. We do not see anything in this company's numbers that would change the one-year trend, though a bull or bear market could sway the movement of this stock.

We've downgraded

Intuitive Surgical

(ISRG) - Get Report

, which engages in the design, manufacture and marketing of da Vinci surgical systems, 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, we find that the stock has had a generally disappointing performance in the past year.

Revenue leaped by 50.4% since the same quarter last year, outperforming the industry average of 15.3% and boosting EPS. Intuitive has a debt-to-equity ratio of zero and maintains a quick ratio of 3.96, which clearly demonstrates the ability to cover short-term cash needs. ROE has improved slightly when compared to the same quarter one year prior, which can be construed as a modest strength in the organization.

Shares are down 59.2% on the year, underperforming the S&P 500, but do not assume that Intuitive can now be tagged as cheap and attractive. Based on its current price in relation to its earnings, it is still more expensive than most of the other companies in its industry

We've upgraded

SXC Health Solutions

( SXCI) from sell to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, we also find weaknesses including disappointing return on equity, poor profit margins and weak operating cash flow.

Revenue leaped by 1,332.2% since the same quarter a year ago, greatly outperforming the industry average of 3.7% growth and boosting EPS. Although SXC's debt-to-equity ratio of 0.25 is very low, it is currently higher than that of the industry average. The company maintains an adequate quick ratio of 1.12, which illustrates the ability to avoid short-term cash problems.SXC's gross profit margin is currently extremely low, at 2.40%, having decreased from the same quarter last year. Net operating cash flow has decreased to $3.56 million, or 46.05% when compared with the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

All ratings changes generated on Dec. 12 are listed below.

Ticker

Company

Current

Change

Previous

AANB

Abigail Adams National Bancorp

SELL

Downgrade

HOLD

ALE

Allete

HOLD

Downgrade

BUY

BHIT

BHIT

SELL

Downgrade

HOLD

CDNS

Cadence Design Systems

SELL

Downgrade

HOLD

DMLP

Dorchester Minerals

HOLD

Downgrade

BUY

DXPE

DXP Enterprises

HOLD

Downgrade

BUY

FWV

First West Virginia Bancorp

BUY

Upgrade

HOLD

GLOB

Global Med Technologies

SELL

Downgrade

HOLD

IOT

Income Opportunity Realty Investors

HOLD

Upgrade

SELL

ISRG

Intuitive Surgical

HOLD

Downgrade

BUY

KSW

KSW

BUY

Upgrade

HOLD

NNUP

Nocopi Technologies

SELL

Downgrade

HOLD

PIP

Pharmathene

SELL

Initiated

PTIE

Pain Therapeutics

HOLD

Downgrade

BUY

SXCI

SXC Health Solutions

HOLD

Upgrade

SELL

TNFG

Terra Nova Financial Group

SELL

Downgrade

HOLD

TRCI

Technology Research

HOLD

Upgrade

SELL

VVDL

Vivid Learning Systems

HOLD

Upgrade

SELL

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.