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. ConAgra Foods ( CAG), a packaged food company, has been upgraded to buy. The company has experienced an increase in net income, attractive valuation levels, good cash flow from operations and growth in revenue and earnings per share. These strengths should outweigh the stock's lackluster performance. Fiscal second-quarter earnings totaled $244.8 million, or 50 cents a share, compared with $213.3 million, or 42 cents a share, a year ago. Income growth has exceeded the food products industry average. ConAgra has demonstrated a pattern of positive EPS growth over the past two years and this trend is expected to continue. Revenue increased 13.7% to $3.51 billion. The company also raised its profit outlook for the full year. ConAgra Foods had been rated hold since March.
Conseco ( CNO), a life and health insurer, has been downgraded to sell. The company's weaknesses can be seen in several areas, such as its feeble EPS growth, deteriorating net income, unsatisfactory return on equity, poor profit margins and a generally disappointing stock performance. Conseco swung to a third-quarter loss of $53.7 million, or 29 cents a share, compared with earnings of $48.4 million, or 26 cents a share, a year ago. EPS declined over the past two years, and we expect this to continue in the coming year. Revenue increased 5% to $1.18 billion. The stock price has tumbled 41.3% in the last year, but its slide should not necessarily be interpreted as a negative; it could be a factor that may help make the stock attractive down the road. Right now, however, TheStreet.Com Ratings believes that it is too soon to buy. Conseco had been rated hold since May 2006. Liberty Media ( LCAPA), a communications company, has been upgraded to hold. The company maintains a largely solid financial position with reasonable debt levels by most measures and a solid stock price performance. However, cash flow from operations has been weak overall. The current debt-to-equity ratio, 0.37, is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems. The gross profit margin is currently lower than ideal, coming in at 32.60%, but it has managed to increase from the same period last year. Current return on equity exceeded ROE from the year-ago quarter. Liberty Media had been rated sell since May 2006.
City National ( CYN), a bank holding company, has been downgraded to hold. The company has experienced revenue growth, good cash flow from operations and EPS growth, but it has also contended with a generally disappointing stock performance and an unsatisfactory return on equity. Third-quarter profit increased 2% over a year ago to $60.1 million, or $1.22 a share. Revenue increased 10% to $235 million. Net operating cash flow has significantly increased by 291% to $34 million, and City National has vastly surpassed the industry-average cash flow growth rate of 157%. The stock has declined 21% from its price level of one year ago. Looking ahead, TheStreet.com Ratings does not see anything in this company's numbers that would change the one-year trend. City National had been rated buy since January 2006. Mohawk Industries ( MHK), a flooring supply company, has been downgraded to hold. While the company maintains a largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, and good cash flow from operations, it has also struggled with unimpressive income growth, disappointing return on equity and a generally unsatisfactory stock performance. Third-quarter income slipped 4.4% from a year ago to $122 million, or $1.78 a share, greatly underperforming the household durables industry average. Sales dropped 4.3% to $1.94 billion, slightly underperforming the industry average. The company said the U.S. residential flooring industry was hurt by the slowing economy, tightening credit markets, falling housing prices and low consumer confidence. Mohawk Industries had been rated buy since December 2006.
Additional ratings changes are listed below.
|Stock Upgrades, Downgrades|
|Ticker||Company Name||Change||New Rating||Former Rating|
|LCAPA||Liberty Media Capital Group||Upgrade||Hold||Sell|
|LCAPB||Liberty Media Captal Group||Upgrade||Hold||Sell|
|RBI||Sport Supply Group||Downgrade||Hold||Buy|
|ABG||Asbury Automotive Group||Downgrade||Hold||Buy|
|NPTE||North Pointe Holdings||Upgrade||Buy||Hold|
|Source: TheStreet.com Ratings|