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 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. Office products retailer OfficeMax ( OMX) has been downgraded to hold. While the company has shown growth in earnings per share, revenue and net income, it also has poor profit margins and weak operating cash flow. In May, OfficeMax swung to a first-quarter profit, but retail sales slipped and earnings fell short of Wall Street's forecasts. The gross profit margin for OfficeMax is currently lower than what is desirable, and net operating cash flow has significantly decreased. The company has been rated buy since May 2006. Alliance One International ( AOI), which sells tobacco to cigarette makers, has been upgraded to hold. Although the company's stock has performed solidly and growth in earnings per share and net income are impressive, debt management and profit margins are generally poor. In June, Alliance One said fiscal fourth-quarter revenue sank 25.5% to $433.2 million, while 2007 sales, at $1.98 billion, came in below the only analyst's forecast. The company did report significant earnings-per-share improvement in the most recent quarter. It had been rated sell since June.
Esco Technologies ( ESE), which makes filtration products and related components, has been downgraded to hold. The company has reported increased net income and revenue growth, and it has a largely solid financial position with reasonable debt levels. In May, the company said its second-quarter profit climbed 31%. However, it also had a disappointing return on equity and weak operating cash flow. In June, the company said its fiscal 2008 outlook might get deflated due to a potential "further delay" or a modification in its supply contract with Pacific Gas & Electric. Despite its growing revenue, the company underperformed compared with the industry average. The company had been rated buy since May. Universal Forest Products ( UFPI), a wood production company, has been downgraded to hold. The company has a largely solid financial position with reasonable debt levels, but it also has seen deteriorating net income, disappointing return on equity and poor profit margins. In April, the company's first-quarter revenue fell to $549 million from $665.6 million a year earlier. Weakness in Universal's revenue seems to have hurt the bottom line, decreasing earnings per share. The company's return on equity is significantly below the industry average. Universal Forest Products had been rated buy since July 2005. MedCath ( MDTH), a hospital and health program operator, has been upgraded to buy. The company has shown a compelling increase in net income with a largely solid financial position, solid stock performance and an impressive record of earnings per share growth. TheStreet.com Ratings believes these strengths outweigh the company's weak operating cash flow. In May, MedCath reported that second-quarter revenue had increased 5% to $192.5 million as the company swung to a profit. Despite MedCath's mixed debt-to-equity ratio, the company's quick ratio is high and demonstrates strong liquidity. The company had been rated hold since July 2005. Additional ratings changes are detailed below.
|Stock Upgrades, Downgrades from TheStreet.com Ratings|
|Ticker||Company Name||Change||New Rating||Former Rating|
|AOI||Alliance One International||Upgrade||Hold||Sell|
|UFPI||Universal Forest Products||Downgrade||Hold||Buy|
|NBF||Nova Biosource Fuels||Initiation||Hold||n/a|
|Source: TheStreet.com Ratings|