TSC Ratings' Updates: JPMorgan - TheStreet

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 Aug. 14.

We upgraded

FirstMerit

(FMER)

to a buy from hold. The Akron, Ohio-based financial company acts as a holding company of FirstMerit Bank. This rating is driven by a number of 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.

The return on equity has improved slightly when compared with the same quarter year over year. This can be construed as a modest strength in the organization. FirstMerit's ROE exceeds that of both the commercial banks industry average and the

S&P 500

.

The gross profit margin for FirstMerit is rather high, currently at 66%. It has increased from the same quarter year over year. Along with this, the net profit margin of 15.8% is above that of the industry average.

Net operating cash flow has slightly increased to $30.51 million, or 2.49% when compared year over year. Despite an increase in cash flow of 2.49%, FirstMerit is still growing at a significantly lower rate than the industry average of 318.86%.

FistMerit's earnings per share from the most-recent quarter came in slightly below the year-earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FirstMerit increased its bottom line by earning $1.53 vs. $1.18 in the prior year. For the next year, the market is expecting a contraction of 2.9% in earnings ($1.49 vs. $1.53).

FirstMerit, with its decline in revenue, underperformed when compared with the industry average of 15.3%. Since the same quarter one year prior, revenues fell by 11.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing EPS.

FirstMerit had been rated a hold as of July 1, 2008.

JPMorgan Chase

(JPM) - Get Report

was upgraded to buy from hold. The New York City-based financial holding company provides a variety of financial services internationally. This rating is driven by some important positives, which we believeshould have a greater impact than any weaknesses and should give investors a better performance opportunity than most stocks we cover.

Net operating cash flow has significantly increased by 277.89% to $26,396.00 million when compared year over year. Despite an increase in cash flow of 277.89%, JPMorgan Chase is still growing at a significantly lower rate than the industry average of 434.27%.

The gross profit margin for JPMorgan is rather high, currently at 56.1%. Regardless of company's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JPMorgan's net profit margin of 7.5% compares favorably to the industry average.

Regardless of the drop in revenue, the company managed to outperform against the industry average of 20.9%. Since the same quarter one year prior, revenues fell by 11.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing EPS.

JPMorgan 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 reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, JPMorgan Chase increased its bottom line by earning $4.37 vs. $3.81 in the prior year. For the next year, the market is expecting a contraction of 43.9% in earnings ($2.45 vs. $4.37).

The change in net income from the same quarter one year ago has exceeded that of the diversified financial services industry average but is less than that of the S&P 500. The net income has significantly decreased by 52.7% when compared with the same quarter one year ago, falling from $4,234 million to $2,003 million.

JPMorgan had been rated a hold since July 16, 2008.

Upgraded to buy from hold was

Max Capital Group

( MXGL). Based out of Hamilton, Bermuda, this financial company operates a specialty insurance and reinsurance business. This rating is driven by several positive factors, which we believe should have a greater impact than any weaknesses and should give investors a better performance opportunity than most stocks we cover.

The revenue growth greatly exceeded the industry average of 23.5%. Since the same quarter one year prior, revenues rose by 24.8%. 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.

Max Capital's debt-to-equity ratio is very low at 0.29 and is currently below that of the industry average, implying that there has been very successful management of debt levels.

Net operating cash flow has significantly increased by 1532.89% to $148.87 million when compared with the same quarter last year. In addition, Max Capital has also vastly surpassed the industry average cash flow growth rate of -27.46%.

The gross profit margin for Max Capital is 37% which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, Max Capital's net profit margin of 23.6% significantly outperformed against the industry.

The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared with the insurance industry average. The net income has decreased by 21.2% when compared year over year, dropping from $94.14 million to $74.2 million.

Max Capital had been rated a hold as of May 7, 2008.

Rosetta Resources

(ROSE) - Get Report

was upgraded to buy from hold. The Houston-based company engages in exploring and developing oil and gas properties within North America. This rating is driven by a number of 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.

Rosetta's very impressive revenue growth greatly exceeded the industry average of 31.6%. Since the same quarter one year prior, revenues leaped by 69.3%. Growth in the company's revenue appears to have helped boost the earnings per share.

Powered by its strong earnings growth of 92.85% and other important driving factors, this stock has surged by 25.36% over the past year, outperforming the rise in the S&P 500 during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.

Rosetta Resources reported significant EPS improvement in the most-recent quarter compared year over year. The company has demonstrated a pattern of positive earnings-per-share growth over the past year, and we feel this trend should continue. During the past fiscal year, Rosetta increased its bottom line by earning $1.13 vs. 89 cents in the prior year. This year, the market expects an improvement in earnings ($2.41 vs. $1.13).

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the oil, gas and consumable fuels industry. The net income increased by 96.5% when compared to the same quarter one year prior, rising from $13.99 million to $27.49 million.

Net operating cash flow has significantly increased by 121.93% to $103.25 million when compared with the same quarter last year. In addition, Rosetta Resources has also vastly surpassed the industry average cash flow growth rate of -25.42%.

Rosetta had been rated a hold as of Nov. 4, 2007.

Next, upgraded to hold from sell is

Clean Energy Fuels

(CLNE) - Get Report

. The Seal Beach, Calif.-based utilities firm provides natural gas as an alternative fuel for vehicle fleets in North America. 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.

Clean Energy's revenue growth trails the industry average of 31.6%. Since the same quarter one year prior, revenues slightly increased by 6.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in EPS.

Clean Energy's debt-to-equity ratio is very low at 0 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 6.14, which demonstrates its ability to cover short-term cash needs.

Compared with other companies in the oil, gas and consumable fuels industry and the overall market, Clean Energy Fuel's ROE significantly trails that of both the industry average and the S&P 500.

Net operating cash flow has significantly decreased to -$5.70 million, or 132.44%, when compared year over year. In addition,the firm's growth rate is much lower than the industry average.

The company, on the basis of change in net income year over year, has significantly underperformed when compared with that of the S&P 500 and the oil, gas and consumable fuels industry. The net income has significantly decreased by 524.0% when compared with the same quarter one year ago, falling from -$0.87 million to -$5.43 million.

Clean Energy had been rated a sell as of July 8, 2008.

Additional ratings changes from August 14 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

ADPT

Adaptec Inc.

Upgrade

Hold

Sell

BRT

BRT Realty Trust

Downgrade

Sell

Hold

BWY

BWAY Holding Co.

Initiated

Sell

CCIX

Coleman Cable Inc.

Upgrade

Hold

Sell

CLNE

Clean Energy Fuels Corp.

Upgrade

Hold

Sell

ENPT

En Pointe Technologies Inc.

Downgrade

Sell

Hold

FFSX

First Federal Bankshares Inc.

Downgrade

Sell

Hold

FMER

FirstMerit Corp.

Upgrade

Buy

Hold

JPM

JPMorgan Chase & Co.

Upgrade

Buy

Hold

KBALB

Kimball International Inc.

Downgrade

Sell

Hold

KSP

K-SEA Transportation Partners

Downgrade

Hold

Buy

LFUS

Littelfuse Inc.

Upgrade

Buy

Hold

LLNW

Limelight Networks Inc.

Initiated

Sell

LPTN

Lpath Inc.

Initiated

Sell

MWA.B

Mueller Water Products Inc.

Upgrade

Hold

Sell

MXGL

Max Capital Group Ltd.

Upgrade

Buy

Hold

OPNT

OPNET Technologies Inc.

Upgrade

Buy

Hold

ROSE

Rosetta Resources Inc.

Upgrade

Buy

Hold

SHOR

ShoreTel Inc.

Upgrade

Hold

Sell

UB

UnionBanCal Corp.

Upgrade

Buy

Hold

WIBC

Wilshire Bancorp Inc.

Upgrade

Buy

Hold

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