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, the 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 affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company. For those reasons, we believe a rating alone cannot tell the whole story, and that it should be part of an investor's overall research. The following ratings changes were generated on May 14. AVX Corp. ( AVX), which manufactures passive electronic components and related products, has been upgraded to buy. For the fourth quarter, revenue grew 7% year over year to $405.9 million, while earnings per share declined to 21 cents from 25 cents. For 2008, the market is expecting a contraction in full-year EPS to 86 cents from 88 cents in 2007. Gross profit margin is rather low at 18%. At 8.8%, net profit margin exceeds the industry average. Shares have fallen 28% in the past year, netting the stock a price-to-earnings ratio of 14.95, which places it at a discount to others in its industry. AVX Corp. had been rated hold since March 18.
GenTek ( GETI), which manufactures industrial components and performance chemicals, has been upgraded to buy. For the first quarter, revenue declined 2.3% year over year to $151.4 million, and earnings per share fell to 13 cents from 43 cents. Return on equity greatly increased from the year-ago quarter to 27% and exceeds the industry average. Despite an increase in cash flow, the company's cash flow growth rate is still lower than the industry average growth rate. With a price-to-earnings ratio of 10.37, the stock trades at a significant discount to its sector peers. GenTek had been rated hold since Aug. 29, 2006. Platinum Underwriters ( PTP), which provides property and marine, casualty and finite risk reinsurance products, has been upgraded to buy. For the first quarter, revenue increased 5.1% year over year to $353 million, and earnings per share climbed to $1.76 from $1.08. For 2008, the market expects an improvement in full-year EPS to $5.66 from $5.39 in 2007. The debt-to-equity ratio is very low at 0.13, implying very successful management of debt levels. Return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. With a price-to-earnings ratio of 5.99, this stock trades at a substantial discount to its sector peers. Platinum Underwriters had been rated hold since Feb. 20. M&F Worldwide ( MFW), which provides checks and check-related products, has been downgraded to hold. Strengths such as robust revenue growth, an increase in net income and good cash flow from operations are countered by poor debt management, disappointing return on equity and a weak stock-price performance. For the first quarter, revenue more than doubled year over year to $473 million, and earnings per share climbed to 58 cents from 44 cents. At 49%, the gross profit margin is strong. The net profit margin of 2.6% trails the industry average. The company's debt-to-equity ratio is very high at 5.97, implying very poor management of debt levels. Its quick ratio of 0.60 demonstrates an inability to cover short-term liquidity needs. Current return on equity is lower than its ROE from the same quarter one year prior and trails the industry average. M&F Worldwide had been rated buy since TheStreet.com Ratings initiated coverage on May 12, 2006.
Gafisa ( GFA), which operates as a homebuilder in Brazil, has been initiated with a hold rating. Strengths such as a solid stock performance, robust revenue growth and impressive EPS improvement are countered by poor profit margins. For the first quarter, revenue more than doubled year over year to $279 million, and earnings per share swung to a profit of 56 cents from a loss of 10 cents. The company's debt-to-equity ratio of 0.69 is somewhat low but exceeds the industry average. Its quick ratio of 1.86 is high and demonstrates strong liquidity. Gafisa's return on equity is below that of both the industry average and the S&P 500. Gross profit margin is currently lower than what is desirable at 34%, but its net profit margin of 13% compares favorably with the industry average. Additional ratings changes from May 14 are listed below.
|Ticker||Company Name||Change||New Rating||Former Rating|
|GPI||Group 1 Automotive||Upgrade||Buy||Hold|
|MHJ||Man Sang Holdings||Upgrade||Buy||Hold|
|NRF||Northstar Realty Finance||Upgrade||Hold||Sell|
|XFML||Xinhua Finance Media||Initiated||Sell|