TSC Ratings' Updates: ImClone

ImClone, Kyocera, Altria upgraded; Anadarko, Wesco 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 stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold and 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 Aug. 5.

Shares of

ImClone Systems

(IMCL)

were upgraded to buy from hold Tuesday. The New York-based health-care company specializes in the development of treatment for cancer patients. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses and should give investors a better performance opportunity than most stocks we cover.

ImClone's revenue growth has slightly outpaced the industry average of 1.4%. Over the same quarter a year ago, revenue rose by 10.7%. 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.

Compared to where it was trading one year ago, ImClone's share price has jumped by 95.57%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ImClone should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.

ImClone's earnings per share, or EPS, declined by 19.4% in the most recent quarter compared to a year ago. The company has suffered a pattern of declining EPS over the past two years. However, we anticipate this trend will reverse over the coming year. This year, the market expects an improvement in earnings ($1.21, vs. 45 cents).

ImClone's debt-to-equity ratio of 0.73 is somewhat low overall, but it is high when compared to the industry average, implying that management of the debt levels should be evaluated further.

The change in net income from the same quarter one year ago has exceeded that of the

S&P 500

but is less than that of the biotechnology industry average. Net income has decreased by 20.7% when compared to the same quarter one year ago, dropping from $31.91 million to $25.29 million.

ImClone had been rated a hold since Nov. 28, 2007.

Tuesday brought an upgrade to buy from hold for

Kyocera

(KYO)

. Based out of Kyoto, Japan, the firm manufactures fine ceramic, semiconductor and telecommunications equipment worldwide. This rating change is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover.

Despite its growing revenue, the company underperformed as compared with the industry average of 23.3%. Since the same quarter one year prior, revenue rose by 22.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving its EPS.

Kyocera'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, Kyocera has a quick ratio of 2.31, which demonstrates the ability of the company to cover short-term liquidity needs.

Net operating cash flow has increased to $382.76 million, or by 34.9% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -7.39%.

Kyocera's EPS improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive EPS growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, Kyocera increased its bottom line by earning $5.66 a share, vs. $4.55 a share in the prior year. For the next year, the market is expecting a contraction of 21.2% in earnings ($4.46 a share, vs. $5.66).

Kyocera had been rated a hold since Oct. 31, 2007.

Altria

(MO) - Get Report

received an upgrade to hold from sell. The Richmond, Va.-based firm is a major manufacturer of cigarettes and other tobacco products. Our recommendation is based on the company's strong revenue growth and interest coverage ability, partially countered by its narrowing margins and lower earnings.

Altria's fiscal second-quarter revenue increased 5.5% year-over-year to $4.18 billion, driven by the solid performance of its subsidiaries, Philip Morris USA and John Middleton. Segment-wise, tobacco products revenue rose 5.5% to $3.91 billion, whereas the financial service segment's revenue slipped 28.8% to $37 million. Additionally, its cigar business generated revenue of $85 million during the quarter.

During the quarter, Altria's gross profit and operating margin contracted 89 basis points to 48.1% and 138 basis points to 32.6%, respectively, adversely affected by a 7.3% rise in the cost of sales and 3.2% higher costs related to marketing, administrative and research. Consequently, earnings plunged 58% to $930 million, due to the spinoff of

Philip Morris International

(PM) - Get Report

.

Altria's cash and cash equivalents balance dropped 93.3% to $415 million at the end of the second quarter. The debt-to-equity ratio was higher at 0.53 compared to 0.51 in the year-ago quarter, led by 74.9% lower debt and a 75.7% decline in shareholder's equity. On the positive side, returns on assets and equity expanded to 39.4% and 161.8% from 21.8% and 37.3% a year ago, respectively. Furthermore, the interest coverage ratio improved to 75.6 from 22.8 a year ago, helped by a 69.5% reduction in interest expenses.

Altria expects adjusted earnings from continuing operations for full-year 2008 to be in the range of $1.63 to $1.67 a share, reflecting a growth rate of 8.7% to 11.3% over the previous year. Additionally, the company anticipates annual savings of $250 million beginning in 2009, on the back of corporate restructuring initiatives undertaken during the recent period.

Altria had been rated a sell since April 30.

Seeing a downgrade from hold to buy was

Anadarko Petroleum

(APC) - Get Report

. The Woodlands, Texas-based company is an explorer and producer of oil and natural gas properties. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

Net operating cash flow has increased to $438 million, or by 22% when compared year over year. In addition, Anadarko has also vastly surpassed the industry average cash flow growth rate of -31.26%.

The gross profit margin for Anadarko is rather high; currently, it is at 53.1%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1% trails the industry average.

Revenue fell significantly faster than the industry average of 32.2%. Since the same quarter one year prior, revenues fell by 21%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the overall oil, gas and consumable fuels industry. Net income has significantly decreased when compared to the same quarter one year ago, falling by 99.2% from $3.02 billion to $23 million.

Return on equity, or ROE, has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the oil, gas and consumable fuels industry and the overall market, Anadarko's ROE is significantly below that of the industry average and is below that of the S&P 500.

Anadarko had been rated a buy since Aug. 4, 2006.

Also downgraded to hold from buy was

Wesco International

(WCC) - Get Report

. The Pittsburgh-based company is a distributor of electrical construction products. The primary factors that have impacted our rating are mixed -- some indicating strength and some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

The company's revenue growth significantly trails the industry average of 63.9%. Since the same quarter one year prior, revenue slightly increased by 4.6%, which appears to have helped boost EPS.

Wesco has improved EPS by 13.1% in the most recent quarter compared to the same quarter last year. The company has demonstrated a pattern of positive earnings per share growth over the past two years, and we feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, Wesco increased its bottom line by earning $5.03 a share, vs. $4.14 a share in the prior year. This year, the market expects an improvement in earnings per share ($5.12, vs. $5.03).

Even though the current debt-to-equity ratio is 1.11, it is still below the industry average, suggesting that this level of debt is acceptable within the overall trading companies and distributors industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.77 is weak.

Wesco's stock share price has done very poorly compared to where it was trading a year ago: Despite any rallies, the net result is that it is down 27.1%, which is also worse that the performance of the S&P 500. 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 gross profit margin for Wesco is rather low; currently it is at 19.6%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.8% trails that of the industry average.

Wesco had been rated a buy since May 6.

Additional ratings changes from Tuesday are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

ADVS

Advent Software

Upgrade

Buy

Hold

APC

Anadarko Petroleum

Downgrade

Hold

Buy

ATX

AT Cross

Upgrade

Buy

Hold

AXAS

Abraxas Petroleum

Upgrade

Hold

Sell

AXTI

AXT

Downgrade

Hold

Buy

BCAR

Bank of the Carolinas

Downgrade

Sell

Hold

BLT

Blount International

Upgrade

Hold

Sell

CMED

China Medical Technologies

Upgrade

Buy

Hold

CPBR

ClearPoint Business Resources

Initiated

Sell

CSGP

CoStar Group

Upgrade

Buy

Hold

CTB

Cooper Tire & Rubber

Downgrade

Sell

Hold

CTS

CTS

Upgrade

Buy

Hold

CXG

CNX Gas

Downgrade

Hold

Buy

FSCI

Fisher Communications

Upgrade

Buy

Hold

FTR

Frontier Communications

Upgrade

Buy

Hold

HE

Hawaiian Electric Industries

Downgrade

Hold

Buy

HEP

Holly Energy Partners

Downgrade

Hold

Buy

HURC

Hurco

Downgrade

Hold

Buy

IMCL

ImClone Systems

Upgrade

Buy

Hold

IOSP

Innospec

Downgrade

Hold

Buy

KYO

Kyocera

Upgrade

Buy

Hold

LCAV

LCA-Vision

Downgrade

Sell

Hold

LINC

Lincoln Educational Services

Upgrade

Buy

Hold

MO

Altria Group

Upgrade

Hold

Sell

NNBR

NN

Upgrade

Buy

Hold

OSK

Oshkosh

Downgrade

Sell

Hold

REP

Repsol YPF SA

Downgrade

Hold

Buy

SBLK

Star Bulk Carriers

Initiated

Hold

SCOR

comScore

Initiated

Sell

SHOR

ShoreTel

Initiated

Sell

SHPGY

Shire

Upgrade

Hold

Sell

SMG

Scotts Miracle-Gro

Downgrade

Sell

Hold

SSW

Seaspan

Upgrade

Hold

Sell

WCC

WESCO International

Downgrade

Hold

Buy

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