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.

Sears Holdings ( SHLD) operates through three segments: Kmart, Sears Domestic and Sears Canada. It has been downgraded to a hold from a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures.

However, it has also shown unimpressive net income growth and poor profit margins. In addition, Sears' stock price has declined 36% in the 12 months prior to Nov. 21. The company had been rated a buy since March 2006.

Sears reports its third-quarter earnings before the market opens on Nov. 29.

Clothing retailer The Gap ( GPS) has been upgraded to a buy from a hold. The company's third-quarter net income increased 25.4% to $237 million from $189 million in the same quarter last year. Its earnings also increased to 30 cents per share from 24 cents a share in the third quarter of 2006. The Gap's debt-to-equity ratio of 0.04 is below that of the industry average, implying that there has been very successful management of debt levels.

However, its quick ratio of 0.63 displays a potential problem in covering short-term needs. The company's strengths outweigh its feeble stock price performance, which has declined by 0.43% in the 12 months prior to Nov. 21. The Gap had been rated a hold since September 2006.

Xilinx ( XLNX) designs, develops and markets programmable logic solutions. It has been downgraded to a hold from a buy. The company's earnings rose to 30 cents per share in the second quarter of its fiscal 2008 compared with 26 cents a share during the same period last year. Xilinx has demonstrated a pattern of positive EPS growth over the past two years, a trend that TheStreet.com Ratings expects to continue.

Its return on equity improved to 18.95% in the second quarter compared with 13.61% in the same period last year. This is a clear sign of strength within the company. Xilinx has also reported expanding profit margins.

However, the company's second-quarter net income declined 3.6% to $89.90 million from $93.05 million in the same period last year. In addition, its stock price has dropped 22.06% in the 12 months prior to Nov. 21. The fact that the stock is now selling for less than others in its industry in relation to current earnings is not reason enough to justify a buy rating at this time. Xilinx had been rated a buy since April 2007.

Through its subsidiaries, Simpson Manufacturing ( SSD) manufactures and markets building products. It has been downgraded to a hold from a buy. The company is carrying no debt, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.73, which demonstrates the ability to cover short-term cash needs. Its gross profit margin of 37.40% is considered strong, and its net profit margin of 10.40% compares favorably to the industry average.

However, Simpson Manufacturing's third-quarter earnings fell to 46 cents per share compared with 56 cents a share during the same period last year. Its return on equity declined to 12.02% in the third quarter compared with 16.69% in the same period last year. This implies a minor weakness in the organization. Its return on equity is significantly below both that of the industry average and the S&P 500. Simpson Manufacturing had been rated a buy since December 2006.

Mentor Corporation ( MNT) develops, manufactures and markets products in the aesthetic medicine market. It has been downgraded to a hold from a buy.

The company's revenue increased by 27.6% in the second quarter of its fiscal 2008 compared with the same period last year, exceeding the industry average of 2.7%. Mentor's second-quarter earnings improved 12.5% to 27 cents per share up from 24 cents a share during the same period last year. Net income inched up by 2% to $9.92 million in the second quarter from $9.72 million in the same period last year.

However, its debt-to-equity ratio of 1.35 is relatively high compared with the industry average, suggesting a need for better debt level management. Mentor's stock price has dropped by 30.93% in the 12 months prior to Nov. 21, as investors have so far failed to pay much attention to the earnings improvements the company has achieved over the last 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, it is too soon to buy. Mentor had been rated a buy since August 2007.

Additional ratings changes are listed below.

Stock Upgrades, Downgrades
Company Name Ticker Change New Rating Former Rating
Aehr Test Systems AEHR Downgrade Hold Buy
Superior Bancorp SUPR Downgrade Sell Hold
Bowne & Co. BNE Downgrade Hold Buy
Clicksoftware Technologies CKSW Downgrade Hold Buy
Gap GPS Upgrade Buy Hold
Healthstream HSTM Downgrade Hold Buy
Mentor Corp MNT Downgrade Hold Buy
Omega Protein OME Downgrade Hold Buy
Pacific Sunwear Calif PSUN Downgrade Sell Hold
Schawk SGK Downgrade Hold Buy
Simpson Manufacturing SSD Downgrade Hold Buy
Smith Micro Software SMSI Downgrade Hold Buy
Tany Brands Accessories TBAC Downgrade Sell Hold
Vicro VICR Upgrade Hold Sell
Xilinx XLNX Downgrade Hold Buy
Xfone XFN Upgrade Buy Hold
Sears Holding SHLD Downgrade Hold Buy
Community Bancorp CBON Downgrade Sell Hold
Source: TheStreet.com Ratings

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