Each business day,
Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stocks total return potential over a 12-month period, including both prices 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 August 6.
Fitness club operator
Town Sports International
has been upgraded to hold. Its return on equity has significantly exceeded both the industry average and the
. Net operating cash flow has increased 100% to $37 million compared with the same quarter one year prior. Compared with last year, the stock share price is down 47%. At 27% the gross profit margin is also lower than desirable but has increased from the same quarter last year. Debt-to-equity ratio is very high at 45.3, implying that there is very poor management of debt levels within the company. Town Sports had been rated sell since ratings were initiated on July 3, 2007.
Shallow-water drilling service provider
has been downgraded to hold. Its revenue growth greatly exceeded the industry average, rising 173%. At 0.60 the debt-to-equity ratio is low but still above the industry average, implying that further evaluation needs to be done on the management of debt levels. Compared with the same quarter last year return on equity has greatly decreased, implying a sign of weakness within the company. Net income has also significantly decreased, falling 30% compared with last year. Hercules Offshore had been rated buy since July 23.
has been downgraded to hold. The company has experienced sluggish revenue growth, with total revenue rising only 0.4% compared with the same quarter one year ago. The latest first quarter gross profit margin shrunk 25 basis points to 25%. Furthermore, the company had a weaker liquidity position as indicated by its quick ratio of 0.24. Lower interest expense helped the company to a 9% growth in earnings, or 76 cents per share compared to 69 cents one year ago. The debt-to-equity ratio also improved, falling to 1.45. Supervalu had been rated buy since May 19.
, which deploys electronic marketplaces and similar trading technology, has been downgraded to sell. The company has significantly underperformed compared with the
, with net income decreasing by 154% compared with one year ago. Return on equity has greatly decreased as well, a sign of major weakness within the company. At 14% the gross profit margin is extremely low. Along with this, the net profit margin of -1.2% trails the industry average. Finally, share prices are down 8% compared with this point one year ago. BCG Partners had been rated hold since ratings were initiated on August 4, 2006.
Enterprise portal application developer
has been downgraded to sell. The company has experienced a steep decline in earnings per share in the most-recent quarter, reporting lower earnings of 16 cents vs. 22 cents in the same quarter last year. Net income has decreased by 83% compared with the same quarter one year ago, significantly underperforming the industry average. Over the last year the stock has tumbled 68%, with earnings per share falling 87% in comparison to the previous year. Revenue fell 36% which was also much faster than the industry average. BroadVision had been rated hold since May 25, 2007.
Additional ratings changes from August 6 are listed below.
BGC Partners Inc.
Town Sports International Holdings
Herculues Offshore Inc.
This article was written by a staff member of TheStreet.com Ratings.