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. NCR ( NCR), which makes ATMs and checkout scanners, has been upgraded to a buy. The company maintains a largely solid financial position with reasonable debt levels, attractive valuation levels, a solid stock price performance and an increase in net income. These strengths should outweigh the company's somewhat disappointing return on equity. In July, NCR said second-quarter earnings increased 26% from a year ago to $98 million, or 54 cents a share. Revenue was $1.61 billion, up from $1.53 billion. This stock has surged by 37.84% over the past year (adjusting for the spinoff of the company's Teradata unit that was effective Oct. 1) and it should continue to move higher even though it has already enjoyed a very nice gain in the past year. NCR had been rated a hold since Oct. 19. That rating was based on pricing data that was not adjusted for the Teradata spinoff, which resulted in the distribution of one common share of Teradata for each share of NCR common stock. After adjusting for the split, the downgrade was reversed and the company's rating was restored to a buy. TheStreet.com Ratings will continue to monitor price action in the stock and this factor's influence on the overall rating.
Silicon Laboratories ( SLAB), which makes integrated circuits, has been upgraded to a buy. The company maintains a largely solid financial position with reasonable debt levels, a solid stock performance and growth in net income and earnings per share. These strengths should outweigh the company's somewhat disappointing return on equity. Silicon Laboratories recently said third-quarter earnings climbed to $20.4 million, or 37 cents per share, from $4.7 million, or 8 cents per share, in the year-ago period. Revenue increased 20% to $87.9 million. The company's stock has surged by 32.2% over the past year to a price level that is now somewhat expensive compared to the rest of its industry. TheStreet.com Ratings believes the company's other strengths justify the higher price levels. Silicon Laboratories had been rated a hold since May 2006. Pogo Producing ( PPP), an oil and gas producer, has been upgraded to a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and solid stock price performance. These factors should outweigh the company's subpar growth in net income. In July, Pogo Producing agreed to be acquired by rival Plains Exploration & Production ( PXP) for about $3.6 billion, or $60 a share. Plains Exploration & Production is paying for Pogo in part with its own stock, which also carries a buy rating. On Thursday Pogo swung to a third-quarter loss of $45.9 million, or 79 cents a share, compared with earnings of $33.4 million, or 58 cents a share, a year ago, as the company recorded charges and sold operations. Pogo Producing had been rated a hold since March. Community Health Systems ( CYH), which operates hospitals, has been downgraded to a hold. While the company has multiple strengths, such as its robust revenue growth, reasonable valuation levels and growth in earnings per share, profit margins have been poor and the stock performance and return on equity have both been disappointing. In July, Community Health posted second-quarter net income of $53.8 million, or 57 cents a share, up 3% from a year ago, while revenue increased18% to $1.25 billion. The company had recently completed a $5.27 billion buyout of Triad Hospitals. Community Health Systems' stock has declined 14.4% from a year ago. There is nothing in the company's numbers that may help reverse this decline. Despite the decline, the stock is still selling for more than most others in its industry. Community Health Systems had been rated a buy since February. Zimmer Holdings ( ZMH), which makes orthopedic devices, has been downgraded to hold. The company maintains a largely solid financial position with reasonable debt and valuation levels and revenue growth, but it is also faced with deteriorating net income, disappointing return on equity and weak operating cash flow. Third-quarter net income fell 76% to $44.5 million, or 19 cents a share, due to a $169.5 million charge to resolve a federal investigation regarding relationships between orthopedic providers and consulting surgeons. Revenue climbed 10% to $903.2 million. The stock is now trading at a higher level than a year ago, regardless of the company's weak earnings results and there is currently no conclusive evidence that warrants the purchase or sale of this stock. Zimmer Holdings had been rated a buy since October 2005. Additional ratings changes are listed below.
|Stock Upgrades, Downgrades|
|Company Name||Ticker||Change||New Rating||Former Rating|
|Community Health Systems||CYH||Downgrade||Hold||Buy|
|First Defiance Financial||FDEF||Downgrade||Hold||Buy|
|Palomar Medical Technologies||PMTI||Downgrade||Hold||Buy|
|Comsys IT Partners||CITP||Upgrade||Buy||Hold|
|Source: TheStreet.com Ratings|