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. However, our rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could impact the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company. For this reason, we believe a rating alone cannot tell the whole story and should be part of an investor's overall research. AnnTaylor Stores ( ANN), a specialty retailer of women's apparel, shoes and accessories, has been downgraded to hold. While the company's strengths can be seen in several areas, such as its revenue growth, earnings per share and net income, the stock's performance over the past year has been generally disappointing.
Third-quarter income rose 4% on the year to $40.8 million, or 66 cents a share. The company has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. Revenue rose 6% to $600.9 million. The company also cut its earnings guidance for fiscal year 2007 on disappointing same-store sales for December and similar forecasts for January. The stock has fallen 29.85% over the past year. Although the drop in stock price should not necessarily be interpreted as a negative, TheStreet.com Ratings believes it is too soon to buy. AnnTaylor Stores had been rated buy since October. Air carrier Continental Airlines ( CAL) has been downgraded to hold. The company has enjoyed revenue growth, is attractively valued and has good cash flow. However, it has also struggled with bad debt management and poor profit margins, and the performance of its stock has been generally disappointing. Third-quarter profit totaled $241 million, or $2.15 a share, compared with $237 million, or $2.17 a share, a year ago. This company has reported somewhat volatile earnings recently, but it seems poised for EPS growth in the coming year. Revenue rose 8.6%, well below the industry average of 23.4%, to $3.82 billion. Shares have fallen 60.02% over the past 12 months, and in one sense, the stock's sharp decline is a positive for future investors, making it cheaper (in proportion to its earnings) than most other stocks in its industry. But due to other concerns, TheStreet.com Ratings feels the stock is still not a good buy right now. Continental Airlines had been rated buy since August 2007.
Computer Sciences ( CSC), an information technology services company, has been downgraded to hold. Computer Sciences maintains a largely solid financial position with reasonable debt levels by most measures, has seen revenue growth and is reasonably valued. However, it has also struggled with unimpressive income growth and poor profit margins, and the stock's performance has been generally disappointing. The company reported delayed second-quarter income of $76 million, or 43 cents a share, down from $90 million, or 51 cents, a year ago. Excluding a charge, it earned 54 cents a share. Income has significantly underperformed when compared with the IT Services industry. Revenue rose 11% to $4.02 billion, slightly outpacing the industry average of 6.9%. Computer Sciences Corp. had been rated buy since November 2006. First Midwest Bancorp ( FMBI), the holding company for First Midwest Bank, has been downgraded to hold. The company sports notable return on equity, expanding profit margins and a reasonable valuation. However, the stock's performance has been generally disappointing, growth in net income has been less than stellar and operating cash flow is weak. First Midwest posted third-quarter EPS of 55 cents, down from 62 cents a year ago. Shares are down 30.55% over the past 12 months, but investors should not assume that the company is now cheap. The reality is that, based on its current price in relation to earnings, First Midwest is still more expensive than most of the other companies in its industry. Return on equity has improved slightly year over year. First Midwest Bancorp had been rated buy since January 2006.
Wilmington Trust ( WL), a financial services company, has been downgraded to hold. While the company has experienced notable return on equity and compelling growth in net income and revenue, its cash flow has been weak and the performance of its stock has been disappointing. Third-quarter net income soared to $46.2 million, or 67 cents a share, from $5.2 million, or 7 cents a share, a year ago. The year-earlier figure was despressed by an impairment charge. The company's stock has dropped 29.23% over the past year. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the drop in share price, investors should not assume that Wilmington Trust is attractive. In reality, based on its current price in relation to its earnings, the stock is still more expensive than that of most of the other companies in its industry. Wilmington Trust had been rated buy since January 2006.