TSC Ratings' Updates: Texas Instruments - 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 July 25.

High-technology manufacturer

Texas Instruments

(TXN) - Get Report

was recently downgraded to hold from buy. 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.

TXN has no debt to speak of, therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, Texas Instruments has a quick ratio of 1.97, which demonstrates the ability of the company to cover short-term liquidity needs.

Current return on equity exceeded its return on equity from the same quarter one year prior. This is a clear sign of strength within the company. Compared with other companies in the semiconductors & semiconductor equipment industry and the overall market, TXN's return on equity significantly exceeds that of both the industry average and the

S&P 500

.

The gross profit margin for Texas Instruments is rather high; currently it is at 59.8%. Regardless of TXN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TXN's net profit margin of 17.5% compares favorably to the industry average.

TXN'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 34.8%, which is also worse than 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 company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared with the semiconductors & semiconductor equipment industry average, but is greater than that of the S&P 500. The net income has decreased by 3.6% when compared with the same quarter one year ago, dropping from $610 million to $588 million. Texas Instruments had been rated a buy since July 15, 2006.

Zenith National Insurance

( ZNT) was downgraded to hold from buy. Zenith is a provider of workers' compensation insurance 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.

ZNT's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been successful management of debt levels.

At 36.4%, the gross profit margin for Zenith is strong. Regardless of ZNT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ZNT's net profit margin of 22.4% significantly outperformed the industry.

Regardless of the drop in revenue, the company managed to outperform against the industry average of 23.5%. Since the same quarter one year prior, revenue fell by 20.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

Zenith's earnings per share declined by 35.3% in the most-recent quarter compared with the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ZNT reported lower earnings of $6.27 vs. $6.96 in the prior year. For the next year, the market is expecting a contraction of 38.6% in earnings ($3.85 vs. $6.27).

Net operating cash flow has decreased to $19.6 million, or 44.7%, when compared with the same quarter last year. In addition, when comparing the cash generation rate with the industry average, the firm's growth is significantly lower. Zenith had been rated a buy since July 26, 2006.

Also seeing a downgrade to hold from buy was

Dow Chemical

(DOW) - Get Report

. DOW is a manufacturer of chemicals, plastics, materials, agriculture and other specialized products. 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.

The revenue growth came in higher than the industry average of 6%. Since the same quarter one year prior, revenue rose by 23.5%. 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.

Despite currently having a low debt-to-equity ratio of 0.57, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.94 is weak.

The gross profit margin for Dow Chemical is currently extremely low, coming in at 13.6%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.7% trails that of the industry average.

The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared with that of the S&P 500 and greatly underperformed compared with the chemicals industry average. The net income has significantly decreased by 26.7% when compared with the same quarter one yearago, falling from $1.039 billion to $762 million. Dow Chemical had been rated a buy as of July 24, 2006.

Downgraded to hold from buy Friday was

Range Resources

(RRC) - Get Report

. Range is an independent oil company that explores for the development and acquisition of oil and 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.

Compared with its closing price of one year ago, RRC's share price has jumped by 42.68%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level that is now relatively expensive compared with the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.

The gross profit margin for Range Resources is rather high; currently it is at 63.5%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, RRC's net profit margin of 23% significantly underperformed when compared with the industry average.

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared with that of the S&P 500 and the oil, gas & consumable fuels industry. The net income has significantly decreased by 153.9% when compared with the same quarter one year ago, falling from $64.21 million to -$34.58 million.

Net operating cash flow has decreased to $138.6 million or 25.1% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower. RRC had been rated a buy as of July 25, 2006.

Taking on a downgrade to sell from hold was

Amerigroup

( AGP). AGP operates as a multistate managed health care company specifically geared toward individuals who receive health care benefits through publically sponsored programs. The downgrade is driven by several 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 to most of the stocks we cover.

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared with that of the S&P 500 and the health care providers & services industry. The net income has significantly decreased by 595.7% when compared with the same quarter one year ago, falling from $32.8 million to -$162.5 million.

Return on equity has greatly decreased when compared with its return on equity from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared with other companies in the health care providers & services industry and the overall market, Amerigroup's return on equity significantly trails that of both the industry average and the S&P 500.

The gross profit margin for AGP is rather low; currently it is at 19.3%. Regardless of Amerigroup's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AGP's net profit margin of -14.40% significantly underperformed when compared with the industry average.

Net operating cash flow has decreased to $102.4 million or 27.3% when compared with the same quarter last year. Despite a decrease in cash flow, Amerigroup is still fairing well by exceeding its industry average cash flow growth rate of -53.6%.

Looking at where the stock is today compared with one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year. AGP had been rated a hold since May 13, 2008.

Additional ratings changes from July 25 are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

AGP

Amerigroup Corp.

Downgrade

Sell

Hold

ARBA

Ariba Inc.

Upgrade

Hold

Sell

ATI

Allegheny Technologies Inc.

Downgrade

Hold

Buy

ATMI

ATMI INC

Downgrade

Hold

Buy

CBBO

Columbia Bancorp

Downgrade

Sell

Hold

DOW

Dow Chemical Co.

Downgrade

Hold

Buy

ESSA

Essa Bancorp, Inc.

Initiated

Sell

FBP

First Bancorp

Downgrade

Sell

Hold

MRTN

Marten Transport Ltd.

Upgrade

Buy

Hold

MTSN

Mattson Technology Inc.

Downgrade

Sell

Hold

NHLD

National Holding Corp.

Downgrade

Sell

Hold

NRGP

Inergy Holdings, L.P.

Upgrade

Hold

Sell

PETD

Petroleum Development Corp.

Downgrade

Hold

Buy

RRC

Range Resources Corp.

Downgrade

Hold

Buy

TQNT

TriQuint Semiconductor Inc.

Upgrade

Buy

Hold

TXN

Texas Instruments Inc.

Downgrade

Hold

Buy

ZNT

Zenith National Insurance Corp.

Downgrade

Hold

Buy

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