TSC Ratings' Updates: Ingram Micro

Ingram Micro, Digital River, Arrow Electronics, Olin and Swift Energy downgraded.
Author:
Publish date:

The following ratings' changes were generated on October 3.

Ingram Micro

(IM)

has been downgraded from buy to hold. Ingram Micro, Inc. and its subsidiaries distributeinformation technology (IT) products and supplychain solutions worldwide. The company offersvarious IT products, including peripherals, systems,software, networking and others. The company's strengths canbe seen in multiple areas, such as its revenue growth, attractive valuation levels and largely solid financialposition with reasonable debt levels by most measures. However, as a counter to these strengths, we alsofind weaknesses including a decline in the stock price during the past year, weak operating cash flow andpoor profit margins.

IM's revenue growth trails the industry average of 20.9%. Since the same quarter one year prior, revenue hasslightly increased by 7.7%. This growth in revenue appears to have trickled down to the company's bottomline, improving the earnings per share.

IM's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying thatthere has been very successful management of debt levels. Although the company had a strongdebt-to-equity ratio, its quick ratio of 0.95 is somewhat weak and could be cause for future problems.

Net operating cash flow has decreased to $275.62 million or 17.90% when compared with the same quarter lastyear. Despite a decrease in cash flow of 17.90%, IM is in line with the industry average cashflow growth rate of -18.71%.

IM is off 23.55% from its price level of one year ago, reflecting the general market trend and ignoring theirhigher earnings per share compared with the year-earlier quarter. The fact that the stock is now selling for lessthan others in its industry in relation to its current earnings is not reason enough to justify a buy rating at thistime.

IM had been rated a buy since June 6, 2008.

Digital River

(DRIV) - Get Report

has been downgraded from buy to hold. Digital River, together with its subsidiaries, provides outsourced e-commerce solutions to various companies in the software and high-tech products, consumer electronics, computer and video games, and other markets primarily in the U.S. and Europe. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and a generally disappointing performance in the stock itself.

DRIV's revenue growth trails the industry average of 36.9%. Since the same quarter one year prior, revenuerose by 25.8%. This growth in revenue appears to have trickled down to the company's bottom line, improvingthe earnings per share.

The gross profit margin for DRIV is currently very high, coming in at 84.90%. Regardless ofDRIV's high profit margin, it has managed to decrease from the same period last year. Despite the mixedresults of the gross profit margin, the net profit margin of 13.40% trails the industry average.

Net operating cash flow has decreased to -$4.63 million or 38.70% when compared with the same quarter lastyear. In addition, when comparing it with the industry average, the firm's growth rate is much lower.

The company, on the basis of change in net income from the same quarter one year ago, has significantlyunderperformed compared with the internet software & services industry average, but is greater than that ofthe

S&P 500

. The net income has decreased by 8.8% when compared to the same quarter one year ago,dropping from $14.49 million to $13.22 million.

DRIV had been rated a buy since June 26, 2006.

Arrow Electronics

(ARW) - Get Report

has been downgraded from buy to hold. Arrow Electronics, distributes a range of electronic components and enterprise computing products, services, and solutions to industrial and commercial users worldwide. It operates in two segments, global components and global enterprise computing solutions. ARW's acquisitions in the recent past and increased effort in expanding new product offerings, positions the company in a favorable growth path. In addition, a strong cash flow and balance sheet position could support the company's strategic business initiatives.

ARW has been strengthening its competitive position and improving its financial performance through various acquisitions. The company recently agreed to acquire ACI Electronics LCI, enhancing its product offerings and sales staff. This acquisition is expected to increase the company's earnings by 3 cents to 4 cents in fiscal year 2008. In addition, ARW has entered into anagreement to acquire the franchise components distribution business of Hynetic Electronics and Shreyanics Electronics in India. This step would support the company's franchise expansion in the Asia Pacific region and strengthen its leadership position in the fast growing Indian market.

ARW has a wide ranging customer base, an extended geographical presence and a broad supplier base, including market leaders like IBM, HP and Intel Corp (INTC). These factors combined with the company's increased penetration into emerging markets, especially in China, should help diversify its revenue base. Furthermore, ARW's continuing efforts to penetrate the fast growing mid market and enterprise customer segments; as well as the company's increased focus on expanding its product portfolio in rapidly growing product categories are expected to support growth.

Robust cash flow and balance sheet position. In fiscal year 2007, ARW generated a solid operating cash flow of $850.74million, compared with $124.84 million in fiscal year 2006. Moreover, the total debt remained flat at $1.24 billion, whileshareholder's equity and the cash and equivalent balance increased 18.5% and 32.6% respectively. Thisapart, the company has taken initiatives to enhance shareholders' value through various share repurchaseprograms.

Factors like a decline in consumer spending, the possibility of U.S. recession, higher unemployment levels and any decline in IT spending could adversely impact the financial performance of ARW. Furthermore, the company could face pricing pressures in the Asia region.

ARW had been rated a buy since October 2, 2006.

Olin

(OLN) - Get Report

has been downgraded from buy to hold. Olin Corporation engages in the manufacture and sale of chlor alkali products to commercial and industrial markets in the U.S. andinternationally. It operates in two segments, Chlor Alkali Products and Winchester. The company's strengths canbe seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonabledebt levels by most measures and attractive valuation levels. However, as a counter to these strengths, wealso find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow.

OLN's very impressive revenue growth greatly exceeded the industry average of 12.1%. Since the samequarter one year prior, revenue leaped by 60.9%. Growth in the company's revenue appears to have helpedboost the earnings per share.

The current debt-to-equity ratio, 0.34, is low and is below the industry average, implying that there has beensuccessful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintainsan adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems.

The return on equity has improved slightly when compared with the same quarter one year prior. This can beconstrued as a modest strength in the organization. Compared with other companies in the chemicals industryand the overall market on the basis of return on equity, OLN has underperformed in comparison withthe industry average, but has exceeded that of the S&P 500.

Net operating cash flow has significantly decreased to -$29.60 million or 821.95% when compared with the samequarter last year. In addition, when comparing it with the industry average, the firm's growth rate is much lower.The company, on the basis of change in net income from the same quarter one year ago, has significantlyunderperformed compared with the chemicals industry average, but is greater than that of the S&P 500. The netincome has decreased by 0.3% when compared with the same quarter one year ago, dropping from $35.60million to $35.50 million.

OLN had been rated a buy since February 26, 2008.

Swift Energy

(OLN) - Get Report

has been downgraded from buy to hold. Swift Energy Company engages in thedevelopment, exploration, acquisition, andoperation of oil and gas properties. It focusesprimarily on oil and natural gas reserves onshoreand in the inland waters of Louisiana and Texas. The company's strengths canbe seen in multiple areas, such as its robust revenue growth, attractive valuation levels and expanding profitmargins. However, as a counter to these strengths, we find that the company has not been very careful in themanagement of its balance sheet.

SFY's very impressive revenue growth greatly exceeded the industry average of 31.1%. Since the samequarter one year prior, revenue leaped by 68.4%. Growth in the company's revenue appears to have helpedboost the earnings per share.

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500and the oil, gas & consumable fuels industry. The net income increased by 160.0% when compared with thesame quarter one year prior, rising from $31.51 million to $81.92 million.

Current return on equity exceeded its return on equity from the same quarter one year prior. This is a clear sign ofstrength within the company. In comparison to other companies in the oil, gas & consumable fuels industryand the overall market on the basis of return on equity, SFY has underperformed incomparison with the industry average, but has greatly exceeded that of the S&P 500.

SFY's share price is down 16.12%, reflecting, in part, the market's overall decline, investors ignoring theincrease in its earnings per share. The fact that the stock is now selling for less than others in its industry inrelation to its current earnings is not reason enough to justify a buy rating at this time.

Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average,inferring that management of debt levels may need to be evaluated further. Despite the fact that SFY'sdebt-to-equity ratio is mixed in its results, the company's quick ratio of 0.63 is low and demonstrates weakliquidity.

SFY had been rated a buy since October 2, 2006.

The remaining ratings' changes generated from October 3 are listed below.

Ticker

Company

Current

Change

Previous

ARW

Arrow Electronics

HOLD

Downgrade

BUY

ASML

ASML Holdings

HOLD

Downgrade

BUY

BGC

General Cable Corp.

HOLD

Downgrade

BUY

DIOD

Diodes Inc.

HOLD

Downgrade

BUY

DRIV

Digital River

HOLD

Downgrade

BUY

EMCI

EMC Insurance Group

BUY

Upgrade

HOLD

ERTS

Electronic Arts

SELL

Downgrade

HOLD

FII

Federated Investors

HOLD

Downgrade

BUY

FWRD

Forward Air

HOLD

Downgrade

BUY

GIGM

GigaMedia Ltd.

HOLD

Downgrade

BUY

GPOR

Gulfport Energy Corp.

HOLD

Downgrade

BUY

IHS

IHS Inc.

HOLD

Downgrade

BUY

IM

Ingram Micro

HOLD

Downgrade

BUY

JDAS

JDA Software

HOLD

Downgrade

BUY

KNL

Knoll Inc.

HOLD

Downgrade

BUY

LSTR

Landstar System

HOLD

Downgrade

BUY

MEOH

Methanex Corp

HOLD

Downgrade

BUY

NOEC

New Oriental Energy & Chemical Corp

SELL

Initiated

-

OLN

Olin Corp

HOLD

Downgrade

BUY

RS

Reliance Steel & Aluminum

HOLD

Downgrade

BUY

SCR

Simcere Pharmaceutical Group

SELL

Downgrade

HOLD

SEP

Spectra Energy Partners

SELL

Downgrade

HOLD

SFY

Swift Energy Co

HOLD

Downgrade

BUY

TEN

Tenneco

SELL

Downgrade

HOLD

TWI

Titan International

HOLD

Downgrade

BUY

VTNC

Vitran Corp.

HOLD

Downgrade

BUY

WFT

Weatherford International

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.

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