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 22.

Goldman Sachs ( GS - Get Report), an investment bank, has been upgraded to buy. For the first quarter, revenue fell 16% year over year to $18.63 billion, and earnings per share fell to $3.23 from $6.67. Goldman's gross profit margin is rather high at 68% and outperforms the industry average.

Return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Despite the decline, the return on equity greatly exceeds the industry average. With a price-to-earnings ratio of 8.38, the stock trades at a significant discount to its sector peers. Goldman Sachs had been rated hold since April 14.

Discovery Holding ( DISCA - Get Report), which through its subsidiary Ascent Media Group provides creative and network services to the media and entertainment industries, has been upgraded to buy. For the first quarter, revenue increased 8.9% year over year to $189.3 million, and earnings per share climbed to 12 cents from 7 cents.

For 2008, the market expects an improvement in full-year EPS to 57 cents from a loss of 25 cents in 2007. Discovery has no debt to speak of, so it has a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Its quick ratio of 2.88 clearly demonstrates an ability to cover short-term cash needs. Discovery Holding had been rated hold since Nov. 27.

American Reprographics ( ARP), which provides business-to-business document management services, has been upgraded to buy. For the first quarter, revenue grew 17% year over year to $187.4 million, and earnings per share climbed to 41 cents from 37 cents. For 2008, the market expects an improvement in full-year EPS to $1.55 from $1.52 in 2007.

Return on equity has improved slightly year over year. This can be construed as a modest strength in the organization. When compared with other companies in the commercial services and supplies industry and the overall market, return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500. With a price-to-earnings ratio of 11.86, the stock trades at a discount to others in its sector. American Reprographics had been rated hold since Feb. 5.

Companhia de Bebidas das Americas ( ABV), which produces, distributes and sells beer in Latin America, has been downgraded to hold. Strengths such as robust revenue growth and impressive improvement in earnings per share are countered by weak cash flow from operations. For the first quarter, revenue increased 23% year over year to $2.78 billion, and earnings per share rose to 70 cents from 50 cents.

For 2008, the market expects an improvement in full-year EPS to $3.67 from $2.57 in 2007. The company's gross profit margin is rather high at 66%. However, its net profit margin of 15% trails the industry average. Net operating cash flow has decreased 32% to $440.5 million when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. Shares have risen over the past year, outperforming the S&P 500 and netting the stock a price-to-earnings ratio of 26.71, which places it at a premium to others in its industry. Companhia de Bebidas das Americas had been rated buy since Feb. 29.

Watsco ( WSO - Get Report), which together with its subsidiaries distributes air conditioning, heating and refrigeration equipment, has been downgraded to hold. Strengths such as revenue growth, a solid financial position and good cash flow from operations are held back by a disappointing stock-price performance, feeble EPS growth and deteriorating net income. For the first quarter, revenue inched up 2.6% to $380.4 million, while earnings per share declined to 28 cents from 39 cents.

For 2008, the market is expecting a contraction of 2.9% in full-year EPS to $2.35. Although the company's debt-to-equity ratio of 0.07 is very low, it is currently higher than that of the industry average. Its quick ratio of 1.16 illustrates the ability to avoid short-term cash problems. With a price-to-earnings ratio of 18.99, the stock trades at a premium to others in its industry. Watsco had been rated buy since TheStreet.com Ratings initiated coverage on May 19, 2006.

Additional ratings changes from May 22 are listed below.

Ticker Company Name Change New Rating Former Rating
ABV CIA de Bebidas das Americas Downgrade Hold Buy
ARP American Reprographics Upgrade Buy Hold
CHLN China Housing & Land Development Initiated Hold
CMFB CommerceFirst Bancorp Downgrade Sell Hold
CNAF Commercial National Financial Downgrade Hold Buy
CRED Credo Petroleum Upgrade Buy Hold
CWT California Water Service Downgrade Hold Buy
DISCA Discovery Holding Upgrade Buy Hold
GS Goldman Sachs Upgrade Buy Hold
GTE Gran Tierra Energy Initiated Hold
ICE InterContinentalExchange Upgrade Buy Hold
NGAS NGAS Resources Upgrade Hold Sell
PRCP Perceptron Downgrade Hold Buy
SCR Simcere Pharmaceutical Initiated Hold
SINA Sina Corp. Upgrade Buy Hold
SLI SL Industries Downgrade Hold Buy
TLP Transmontaigne Partners Downgrade Hold Buy
WSO Watsco Downgrade Hold Buy
WSO.B Watsco Downgrade Hold Buy
ZYNX Zynex Medical Upgrade Hold Sell

This article was written by a staff member of TheStreet.com Ratings.