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 May 8.
, which through its subsidiaries designs and develops digital wireless technologies, has been upgraded to buy. The company's gross profit margin is very high at 100%. However, its net profit margin of 13% trails the industry average.For the first quarter, revenue decreased 17% year over year to $56 million, and earnings per share declined to 15 cents from 34 cents. For 2008, the market expects an improvement in full-year EPS to 58 cents from 39 cents in 2007. Net income has decreased 59% to $7.3 million. Interdigital had been rated hold since Aug. 10.
Nordic American Tanker Shipping
, which owns and operates crude oil tankers in Bermuda, has been upgraded to buy. For the first quarter, net income increased 2.7% year over year to $23.4 million. Revenue fell 11% to $51.7 million and EPS declined to 78 cents from 85 cents. The debt-to-equity ratio is very low at 0.17, implying successful management of debt. A quick ratio of 3.84 clearly demonstrates an ability to cover short-term cash needs. The company's gross profit margin is very high at 74%. Its net profit margin of 45% significantly outperformed against the industry average. Shares have not posted a net change in price from one year ago, and the stock has a price-to-earnings ratio of 23.41, which makes it more expensive than others in its industry. We feel other factors justify the high valuation. Nordic American Tanker Shipping had been rated hold since Nov. 8.
, a technology, media and financial services company, has been downgraded to hold. Strengths such as revenue growth, notable return on equity and good cash flow from operations are balanced by unimpressive growth in net income, generally poor debt management and a disappointing stock-price performance.For the first quarter, revenue increased 7.8% year over year to $41.7 billion, while earnings per share fell to 44 cents from 48 cents. Return on equity has improved to 19% from 18% a year ago and exceeds the industry average. This can be construed as a modest strength in the organization. The company's gross profit margin is rather high at 61%. Its net profit margin of 10% has significantly decreased in the past year. The debt-to-equity ratio is very high at 4.72 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. General Electric had been rated buy since Dec. 17.
Marsh & McLennan
, which provides advice and solutions in the areas of risk, strategy and human capital, has been downgraded to hold.Strengths such as revenue growth and a solid financial position are balanced by unimpressive growth in net income, disappointing return on equity and a premium valuation. For the first quarter, revenue increased 8.3% year over year to $3.05 billion, while earnings per share swung to a loss of 41 cents from a profit of 41 cents. For 2008, the market expects an improvement in full-year EPS to $1.55 from 98 cents in 2007. The debt-to-equity ratio of 0.48 is higher than the industry average. A quick ratio of 1.51 demonstrates strong liquidity.
, which provides clearinghouse services to the communications industry, has been downgraded to sell. For the first quarter, revenue increased 20% year over year to $117.4 million, while earnings per share swung to a loss of 6 cents from a profit of 23 cents. Return on equity has slightly decreased from the same quarter one year prior. For 2008, the market expects an improvement in full-year EPS to $1.31 from $1.16 in 2007. This implies a minor weakness in the organization. The company's gross profit margin is currently very high at 79%. However, its negative net profit margin of 3.8% is in-line with the industry average. Shares have slipped 5.7% in the past year. Despite the past decline, the stock, with a price-to-earnings ratio of 32.59, is still selling for more than most others in its industry. NeuStar had been rated hold since Jan. 3, 2007.
Additional ratings changes from May 8 are listed below.
This article was written by a staff member of TheStreet.com Ratings.