TSC Ratings' Updates: Kraft - 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.

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The following ratings changes were generated on Aug. 12.

Upgraded to buy from hold was

Aetna

(AET)

. Based out of Hartford, Conn., it operates as a diversified health care benefits company. This 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.

Aetna's revenue growth came in higher than the industry average of 3.7%. Since the same quarter one year prior, revenues rose by 15.2%. Growth in the company's revenue appears to have helped boost its earnings per share.

Aetna has improved earnings per share by 14.1% in the most-recent quarter compared year over year. The company has demonstrated a pattern of positive EPS growth over the past two years, and we feel this trend should continue. During the past fiscal year, Aetna increased its bottom line by earning $3.48 vs. $2.97 in the prior year. This year, the market is forecasting an improvement in earnings ($4 vs. $3.48).

The net income growth from the same quarter one year ago has significantly exceeded that of the

S&P 500

and of the health care providers and services industry. The net income increased by 6.5% when compared year over year, going from $451.30 million to $480.50 million.

The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.34 is very weak and demonstrates a lack of ability to pay short-term obligations.

Aetna had been rated a hold as of July 15.

We upgraded

Ceradyne

( CRDN) to buy from hold. The Costa Mesa, Calif.-based firm is a developer of technical ceramic products, powders and components for multiple applications within the U.S. This is driven by a few notable 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.

Ceradyne's debt-to-equity ratio is very low at 0.19 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 5.26, which clearly demonstrates the ability to cover short-term cash needs.

The gross profit margin for Ceradyne is 45.90%, which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 17.90% significantly outperformed against the industry average.

Net operating cash flow has significantly increased by 215.73% to $23.34 million when compared with the same quarter last year. In addition, Ceradyne has also vastly surpassed the industry average cash flow growth rate of -36.56%.

Ceradyne, with its decline in revenue, slightly underperformed the industry average of 3.6%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

Ceradyne's EPS declined by 9.4% in the most-recent quarter compared year over year. This company has reported somewhat volatile earnings recently, and we feel that it is likely to report a decline in earnings in the coming year. During the past fiscal year, Ceradyne increased its bottom line by earning $5.20 vs. $4.69 in the prior year. For the next year, the market is expecting a contraction of 7.7% in earnings ($4.80 vs. $5.20).

Ceradyne had been a hold since March 7, 2008.

We also upgraded

Kraft Foods

( KFT) to buy from hold. The consumer goods company is based out of Northfield, Ill., and specializes in the manufacturing of packaged foods and beverages internationally. This is driven by a few notable 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.

Kraft's revenue growth trails the industry average of 37.3%. Since the same quarter one year prior, revenues rose by 21.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

The gross profit margin for Kraft Foods is 38.40%, which we consider to be strong. It has increased from the same quarter year over year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.50% trails the industry average.

Compared with where it was trading a year ago, Kraft's share price has not changed very much due to the relatively weak year-over-year performance of the overall market, the company's stagnant earnings and other mixed results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

Kraft has improved earnings per share by 9.1% in the most-recent quarter compared year over year. This company has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, Kraft reported lower earnings of $1.63, vs. $1.85 in the prior year. This year, the market expects an improvement in earnings ($1.93 vs. $1.63).

The company, on the basis of net income growth year over year, has significantly underperformed compared to the food products industry average, but is greater than that of the S&P 500. The net income increased by 3.5% when compared with the same quarter one year prior, going from $707 million to $732 million.

Kraft had been rated a hold as of Jan. 25, 2008.

We downgraded

Teppco Partners

( TPP) to hold from buy. The Houston-based company operates pipelines of refined products and liquefied petroleum in the U.S. 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.

Teppco's very impressive revenue growth greatly exceeded the industry average of 31.9%. Since the same quarter one year prior, revenues jumped by 104.0%. 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.

Tepcco'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, and we feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Teppco increased its bottom line by earning $2.59 vs. $1.77 in the prior year. For the next year, the market is expecting a contraction of 24.7% in earnings ($1.95 vs. $2.59).

The change in net income from the same quarter one year ago has greatly exceeded that of the S&P 500 but is less than that of the oil, gas and consumable fuels industry average. The net income has decreased by 0.1% when compared year over year, dropping from $47.76 million to $47.70 million.

The gross profit margin for Teppco is currently extremely low, coming in at 2.40%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.10% trails that of the industry average.

Currently the debt-to-equity ratio of 1.84 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated.

Teppco had been rated a buy as of Aug. 11, 2006.

Receiving a downgrade to sell from hold was

Delta Petroleum

( DPTR). The Denver-based company operates as an exploratory crude oil and natural gas producer within the U.S. This is driven by a number of negative factors, which we believe should have a greater impact than any strength and could make it more difficult for investors to achieve positive results compared with most of the stocks we cover.

The company, on the basis of change in net income from the same quarter year over year, has significantly underperformed compared with the oil, gas and consumable fuels industry average, but is greater than that of the S&P 500. The net income has decreased by 12.4% when compared year over year, dropping from -$18.74 million to -$21.06 million.

The company's current ROE has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared with other companies in the oil, gas and consumable fuels industry and the overall market, Delta Petroleum's return on equity significantly trails that of both the industry average and the S&P 500.

Net operating cash flow has decreased to $7.02 million, or 43.95%, when compared year over year. In addition, when comparing the cash generation rate with the industry average, the firm's growth is significantly lower.

Delta Petroleum is off 6.75% from its price level of one year ago, reflecting a combination of the general market trend and the company's own weaknesses, including its lower earnings per share compared with the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

Delta's earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Delta Petroleum reported poor results of -$2.61 vs. negative 38 cents in the prior year. This year, the market expects an improvement in earnings (7 cents vs. -$2.61).

Delta Petroleum had been rated a hold since April 23, 2008.

Additional ratings changes from Aug. 12 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

ACET

Aceto Corp.

Upgrade

Buy

Hold

ADC

Agree Realty Corp.

Upgrade

Buy

Hold

AET

Aetna Inc.

Upgrade

Buy

Hold

ATLS

Atlas America Inc.

Downgrade

Sell

Hold

CPSI

Computer Programs & Systems

Upgrade

Buy

Hold

CRDN

Ceradyne Inc.

Upgrade

Buy

Hold

CRS

Carpenter Technology Corp.

Downgrade

Hold

Buy

DPTR

Delta Petroleum Corp.

Downgrade

Sell

Hold

ECLP

Eclipsys Corp.

Upgrade

Buy

Hold

ELX

Emulex Corp.

Downgrade

Sell

Hold

ERF

Enerplus Resources Fund

Downgrade

Hold

Buy

GEOI

GeoResources Inc.

Initiated

Hold

GPR

Geopetro Resources Co.

Downgrade

Sell

Hold

IPSU

Imperial Sugar Co.

Downgrade

Sell

Hold

KAZ

BMB Munai Inc.

Downgrade

Hold

Buy

KFRC

Kforce Inc.

Upgrade

Buy

Hold

KFT

Kraft Foods Inc.

Upgrade

Buy

Hold

KRNY

Kearny Financial Corp.

Upgrade

Hold

Sell

LDK

LDK Solar Co. Ltd.

Initiated

Sell

MGIC

Magic Software Enterprises Ltd.

Upgrade

Hold

Sell

NTLS

NTELOS Holdings Corp.

Upgrade

Buy

Hold

ONB

Old National Bancorp

Upgrade

Buy

Hold

PMBC

Pacific Mercantile Bancorp

Downgrade

Sell

Hold

ROY

International Royalty Corp.

Downgrade

Sell

Hold

SRVY

Greenfield Online Inc.

Upgrade

Buy

Hold

TNB

Thomas & Betts Corp.

Upgrade

Buy

Hold

TPP

TEPPCO Partners LP

Downgrade

Hold

Buy

VSAT

ViaSat Inc.

Upgrade

Buy

Hold

WWWW

Website Pros Inc.

Downgrade

Sell

Hold

XCO

EXCO Resources Inc.

Upgrade

Buy

Hold

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