TSC Ratings' Upgrades, Downgrades: Palm - 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 Friday, June 27.

Palm

( PALM) was upgraded to hold from sell. The mobile computing solutions company specializes in the production of smartphones and personal digital assistants, or PDAs. The primary factors that have impacted our rating are mixed with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

Palm's revenue fell significantly faster than the industry average of 10.5%. Since the same quarter one year prior, revenue fell by 24%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. Palm's debt-to-equity ratio of 1.0 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further.

Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.04 is sturdy. Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 59.7%, worse than the performance of the

S&P 500

. Consistent with the plunge in the stock price, the company's earnings per share are down 372.7% compared to the year-earlier quarter.

Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy. The gross profit margin for Palm is currently lower than what is desirable, coming in at 32.4%. It has decreased from the same quarter the previous year.

Along with this, the net profit margin of -9.30% is significantly below that of the industry average. Net operating cash flow has significantly decreased to -$8.53 million, or 110.2% when compared to the same quarter last year. In addition, when compared to the industry average, the firm's growth rate is much lower. Palm had been rated a sell since March 24, 2008.

Next up is

Dick's Sporting Goods

(DKS) - Get Report

, which was downgraded to hold from buy. Dick's is a retailer that offers sporting goods equipment, apparel and footwear. The primary factors that have impacted our rating are mixed with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

Dick's revenue growth came in higher than the industry average of 4.5%. Since the same quarter one year ago, revenue rose by 10.8%. 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. The current debt-to-equity ratio, 0.36, 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 0.17 is very weak and demonstrates a lack of ability to pay short-term obligations. The change in net income from the same quarter one year ago has significantly exceeded that of the S&P 500 and the specialty retail industry. The net income has decreased by 4.3% when compared to the same quarter one year ago, dropping from $21.7 million to $20.78 million. Net operating cash flow has significantly decreased to -$86.12 million, or 786.7% when compared to the same quarter last year. In addition, when compared to the industry average, the firm's growth rate is much lower.

Looking at the price performance of Dick's shares over the past 12 months, there is not much good news to report. The stock is down 32.75%, and it has underperformed the S&P 500. In addition, the company's earnings per share are lower today than the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, Dick's is still more expensive than most of the other companies in its industry. Dick's Sporting Goods had been rated a buy since June 26, 2006.

Also receiving a downgrade was

Carmax

(KMX) - Get Report

, which was shifted to a hold rating from buy. The used-car retailer purchases, refurbishes and sells used vehicles throughout the U.S. The primary factors that have impacted our rating are mixed with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

Carmax's revenue growth has slightly outpaced the industry average of 4.5%. Over the same quarter one year prior, revenue slightly increased by 1.6%. 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. Net operating cash flow has slightly increased to $79.36 million, or 5.24% when compared to the same quarter last year. In addition, Carmax has also modestly surpassed the industry average cash flow growth rate of 0.36%.

Carmax's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.74 is somewhat weak and could be cause for future problems.

Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the specialty retail industry and the overall market, Carmax's return on equity is significantly below that of the industry average and is below that of the S&P 500. The gross profit margin for Carmax is currently extremely low, coming in at 13.7%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.3% trails that of the industry average. Carmax had been rated a buy since June 26, 2006.

Energy giant

Valero Energy

(VLO) - Get Report

was downgraded Friday to hold from buy. For the crude oil refiner and marketing company, the primary factors that have impacted our rating are mixed with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

Its revenue growth came in higher than the industry average of 29.6%. Since the same quarter one year prior, revenue rose by 49.5%. 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. Its low debt-to-equity ratio of 0.36 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 0.74 is weak.

The gross profit margin for Valero is currently extremely low, coming in at 3.8%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.9% trails that of the industry average. Net operating cash flow has significantly decreased to $628 million, or 66.7% when compared to the same quarter last year. In addition, when compared to the industry average, the firm's growth rate is much lower. Valero had been rated a buy since June 26, 2006.

Finally there's

Hain Celestial Group

(HAIN) - Get Report

, which was downgraded to hold from buy. The organic food and personal care provider's rating can be attributed to several primary factors that impacted our rating. The factors displayed little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

Hain's revenue growth trails the industry average of 35.6%. Since the same quarter one year prior, revenue rose by 11.2%. 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. The current debt-to-equity ratio, 0.40, is low and below the industry average, implying that there has been successful management of debt levels. To add to this, Hain has a quick ratio of 1.52, which demonstrates the ability of the company to cover short-term liquidity needs.

Hain Celestial's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. However, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Hain increased its bottom line by earning $1.16 a share, vs. 93 cents in the prior year. This year, the market expects an improvement in earnings ($1.39 vs. $1.16).

The gross profit margin for Hain Celestial Group is currently lower than what is desirable, coming in at 30.9%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.1% trails that of the industry average. Net operating cash flow has significantly decreased to $10.14 million, or 51.32% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. Hain had been rated a buy since June 26, 2006.

Additional ratings changes are listed below.

Ticker

Company Name

Change

New Rating

Former Rating

AEL

American Equity Investment Life

Downgrade

Hold

Buy

ALIF

Artificial Life

Upgrade

Hold

Sell

COLB

Columbia Banking System

Downgrade

Hold

Buy

DKS

Dick's Sporting Goods

Downgrade

Hold

Buy

GLOI

GlobalOptions Group

Initiated

Sell

HAIN

Hain Celestial Group

Downgrade

Hold

Buy

HDIX

Home Diagnostics

Upgrade

Hold

Sell

KMX

Carmax

Downgrade

Hold

Buy

LGL

LGL Group

Downgrade

Sell

Hold

NWS

News Corp.

Downgrade

Hold

Buy

OPTR

Optima Pharmaceuticals

Upgrade

Hold

Sell

PALM

Palm Inc.

Upgrade

Hold

Sell

RDI

Reading International

Downgrade

Sell

Hold

RNST

Renasant Corp.

Downgrade

Hold

Buy

UPG

Universal Power Group

Downgrade

Sell

Hold

VLO

Valero Energy

Downgrade

Hold

Buy

VMC

Vulcan Metals

Downgrade

Hold

Buy

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