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.
The following ratings changes were generated on September 16.
BJ Services Company
( BJS) has been downgraded from buy to hold. BJ Services Company and its subsidiaries provide pressure pumping and oilfield services for thepetroleum industry worldwide. Our recommendation is based on the company's double-digit revenue growth and impressive sales across all segments. These positive factors are strengthened by the company's healthy cash position, low leverage and positive management outlook. However, downside risks to the buy rating include less drilling activity in North America, fluctuating commodity prices, declining returns and lower margins.
During the third quarter of fiscal year 2008, BJ Services recorded sales growth of 15.0% year over year to $1.33 billion due to a strong performance across all segments. U.S./Mexico Pressure Pumping revenue increased 9.3%, Canada Pressure Pumping revenue surged 38.3% and International Pressure Pumping was up 14.3%. Oil Services Group revenue increased 32.4% from the year-ago quarter.
The company's debt-to-equity ratio improved to 0.18 from 0.27, demonstrating its low leverage. Furthermore, BJS announced that it plans to buy
Innicor Subsurface Technologies
and values the proposed deal at approximately $55.00 million.
Looking ahead to the fourth quarter of fiscal year 2008, the company expects to generate higher revenue across all business segments. BJS anticipates drilling activity to increase 3.0% to 4.0% in the fourth quarter of fiscal year 2008 and forecasts diluted earnings between 54 cents per share and 57 cents per share.
During the third quarter of fiscal year 2008, cash and cash equivalents jumped 26.5% to $82.54 million. A quick ratio of 1.18 indicates the company's ability to cover short term cash needs.
BJ Services' performance could be affected by uncertainty in North America as thegrowth rate in drilling activity has slowed with fluctuating commodity prices. Additionally, the company faces challenges from declining margins and lower earnings, which may restrict future profitability.
BJS had been rated a buy since April 14, 2008.
( CEG) has been downgraded from buy to hold. Constellation Energy Group, supplies energy products and services to wholesale customers, andretail commercial, industrial, and governmental customers in North America. It operates in threesegments: merchant energy, regulated electric and regulated gas. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including agenerally disappointing performance in the stock itself, disappointing return on equity and poor profit margins.
CEG has improved earnings per share by 48.4% in the most-recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CEG has increased its bottom line by earning $4.51 vs. $4.12 in the prior year. This year, the market expects an improvement in earnings ($5.46 vs. $4.51).
The net income growth from the same quarter one year ago has significantly exceeded that of the
and the independent power producers & energy traders industry. The net income increased by 46.1% when compared with the same quarter one year prior, rising from $119.60 million to $174.80 million.
The debt-to-equity ratio is somewhat low, currently at 0.91 and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that CEG's debt-to-equity ratio is low, the quick ratio, which is currently 0.69, displays a potential problem in covering short-term cash needs.
CEG's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 43.49%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, 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.
The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared with other companies in the independent power producers & energy traders industry and the overall market on the basis of return on equity, CEG has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
CEG had been rated a buy since September 15, 2006.
Industrias Banchoco S.A.B.
has been downgraded from buy to hold. Industrias Bachoco, S.A.B. de C.V., through its subsidiaries, operates as a poultry producer in Mexico. It engages in preparing balanced feed; breeding, hatching, and growing chickens; and processing, packaging, and distributing chicken products and eggs. The company also breeds swine. The company's strengths can be seen in multiple areas, such as its 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 deteriorating net income, disappointing return on equity and poor profit margins.
IBA's revenue growth trails the industry average of 36.9%. Since the same quarter one year prior, revenue rose by 12.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
IBA's debt-to-equity ratio is very low at 0.01 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, IBA has a quick ratio of 2.05, which demonstrates the ability of the company to cover short-term liquidity needs.
IBA has experienced a steep decline in earnings per share in the most-recent quarter in comparison with its performance from the same quarter a year ago. This company has reportedsomewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, IBA has increased its bottom line by earning $2.35 vs. $1.62 in the prior year. For the next year, the market is expecting a contraction of 60.4% in earnings (93 cents vs. $2.35).
The gross profit margin for IBA is rather low; currently it is at 18.10%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.80% trails that of the industry average.
Net operating cash flow has significantly decreased to $13.00 million or 66.66% when compared with the same quarter last year. In addition, when comparing it with the industry average, the firm's growth rate is much lower.
IBA had been rated a buy since September 15, 2006.
has been downgraded from buy to hold. NCR, together with its subsidiaries,provides technology and services that help businesses to interact, connect and relate with their customers. This rating is based on the company's strong top-line performance in fourth quarter of fiscal year 2007. Also, the company's strategic initiatives, new product offerings and ambitious share repurchase program should help drive growth in the future.
In the fourth quarter of fiscal year 2007, NCR's revenue increased 13.1% to $1.52 billion year over year, exceeding the average revenue growth in the industry. This was driven by healthy growth across customer services, retail store automation, financial self service as well as payment and imaging and others segments coupled with favorable currency translation. Looking ahead for the full year fiscal year 2008, management expects revenue growth in the range of 3.0% to 5.0%.
Globally, consumers are rapidly turning to self-service channels, while businesses are automating processes to improve productivity and cost. To gain from this trend, NCR completed the spin-off of its Teradata division in October 2007, to establish itself as a pioneer in this emerging market. Also, NCR plans to expand into other industry verticals and is committed to restructuring initiatives to improve the company's cost structure. NCR now targets 5.0% revenue growth and incremental earnings of 65 cents to 90 cents by fiscal year 2010.
NCR recently launched an entertainment kiosk solution, "NCR Xpress Entertainment" in order to extend its self-service portfolio into the digital media market. Also, leveraging on its leadership position NCR's Indian arm recently expanded into the ATM (automated teller machine) management arena. This apart, NCR introduced a new-line of "self-healing" ATMs and has new offerings scheduled for fiscal year 2008 to sustain growth.
During fiscal year 2007, NCR repurchased nearly 4.20 million shares of common-stock for $83.00 million. Subsequently, NCR had a repurchase authorization of $485.00 million remaining unutilized under its current share buy-back program. Systematic share repurchases are expected to help sustain NCR's return-on-equity in the future.
NCR operates in a market that is highly competitive and is subject to rapid technological changes and evolving industry standards. Other risks emanate from any economic and politicalrisks and adverse foreign currency fluctuations.
NCR had been rated a buy since October 25, 2007.
has been downgraded from hold to sell. CTC Media, operates television networks that offer entertainment programming in Russia. It operates CTC Network targeted principally at 6-54 year-old viewers and the Domashny (Home) Network targeted principally at 25-60 year-old women. This downgrade is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared with most of the stocks we cover. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself.
CTCM's stock share price has done very poorly compared with where it was a year ago: Despite any rallies, the net result is that it is down by 31.86%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, 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.
CTCM's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that CTCM's debt-to-equity ratio is low, the quick ratio, which is currently 0.53, displays a potential problem in covering short-term cash needs.
The gross profit margin for CTCM is rather high; currently it is at 56.70%. Regardless of CTCM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CTCM's net profit margin of 28.30% significantly outperformed against the industry.
Net operating cash flow has increased to $38.11 million or 20.17% when compared with the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 2.91%.
The return on equity has improved slightly when compared with the same quarter one year prior. This can be construed as a modest strength in the organization. Compared with other companies in the media industry and the overall market, CTCM's return on equity significantly exceeds that of both the industry average and the S&P 500.
CTCM had been rated a hold since March 7, 2008.
Additional ratings changes from September 16 are listed below.
This article was written by a staff member of TheStreet.com Ratings.