Each weekday, 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 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. Freight forwarding services and logistics services provider Target Logistics ( TLG) has been downgraded to a hold from a buy. Its gross profit margin of 30.1% in the third quarter of its fiscal 2007 is lower than what is desirable, having decreased from the same quarter in 2006. Also, the company's net profit margin of 0.80% trails that of the industry average. Its return on equity of 7.5% in the same quarter was down from the year-earlier period and is significantly below that of the industry average. The company's stock price has declined 31.7% in the past 12 months. Target Logistics had been rated a buy since February 2007. Blackbaud ( BLKB) provides software and related services for nonprofit organizations. It has been downgraded to a hold from a buy. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 demonstrates an inability to pay short-term obligations. Net income increased by 3.5% in the first quarter of 2007 compared with the same period one year ago, significantly underperforming the S&P 500 and the software industry. While the company has seen its stock price increase 22.3% in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock. Blackbaud had been rated a buy since January 2007.
Securities brokerage and investment bank Paulson Capital ( PLCC) has been upgraded to a hold from a sell. Its revenue swung to a profit of $9.7 million in the first quarter of 2007 compared with a loss of $958,000 in the same period last year, and its debt-to-equity ratio of 0.00 implies very successful management of debt levels. The firm's gross profit margin of 46.7% is high, though it declined significantly from the same period a year ago. Despite the mixed results of the gross profit margin, its net profit margin of 28.6% significantly outperformed against the industry. Paulson Capital had been rated a sell since December 2006. Paragon Technologies ( PTG) provides systems, technologies, products and services for material flow applications. It has been downgraded to a sell from a hold. The company posted a net loss of $270,000 in the first quarter of 2007 after breaking even in the year-earlier period. Paragon's gross profit margin decreased during the same period to 26.5%, and its net profit margin of -7.4% is significantly below that of the industry average. The company has not demonstrated a clear trend in earnings over the past two years, making it difficult to accurately predict earnings for the coming year. Paragon's stock price has declined 26.8% over the past year, and based on its current price in relation to its earnings, is still more expensive than most of the other companies in its industry. The stock had been rated a hold since May 2007. TheStreet.com Ratings has initiated coverage of professional liability insurance provider Darwin Professional Underwriters ( DR) with a sell rating. The company's weaknesses are apparent in several areas, including its premium valuation and poor profit margins. Although Darwin's return on equity increased to 8.2% in the first quarter of 2007, it is still below that of both the industry and the S&P 500.