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 July 10. Family Dollar ( FDO), which operates a chain of neighborhood retail discount stores, was upgraded to buy. The basis of the upgrade is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share and attractive valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow. In the latest quarterly results, revenue slightly increased by 2.9% from the same period last year--underperforming the industry average of 8.6% revenue growth. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. Net income increased to $64.67 million from $60.37 million it earned in the same quarter last year, an increase of 7.1%.
After analyzing the company's debt-to-equity ratio, we noticed it is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.08 is very weak and demonstrates a lack of ability to pay short-term obligations. The company has improved earnings per share by 15.0% year-over-year in the most recent quarter. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, Family Dollar increased its bottom line, earning $1.62 compared with $1.25 in the prior year. For the next year, the market is expecting earnings to fall to $1.61 a share. Family Dollar had been rated a hold since November 21, 2007. Apollo Investment ( AINV), which operates as a principal investment firm specializing in providing mezzanine and senior secured loans to middle market companies, was downgraded to hold. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.
A quick analysis shows the company has a debt-to-equity ratio of 0.86, less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. The return on equity has improved slightly when compared with the same quarter one year prior. This can be construed as a modest strength in the organization. Compared with other companies in the Capital Markets industry and the overall market, on the basis of return on equity, Apollo has outperformed in comparison with the industry average but has underperformed when compared to that of the S&P 500. Financially, the company is doing well. In the most recently quarterly results, revenue rose nicely by 20.1% -- the growth in revenue appears to have helped boost the earnings per share. The company's net operating cash flow is a cause of concern. Net operating cash flow has significantly decreased to -$892.65 million, or 215.03%, when compared with the same quarter last year. Also, the share price has done very poorly compared to where it was a year ago. Despite any rallies, the net result is that it is down by 38.55% -- underperforming the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry but due to other concerns, we feel the stock is still not a good buy right now. Apollo had been rated a buy since May 16, 2008.
Aixtron AG ( AIXG), which manufactures and sells deposition equipment to the semiconductor industry, was downgraded to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive. Aixtron has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. 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. Net operating cash flow has significantly improved to $40.07 million, an increase of 2125.88% when compared with the same quarter last year. However, the company has experienced a steep decline in earnings per share in the most recent quarter in comparison with its performance from the same quarter a year ago. As a result, earnings have become quite volatile, making it difficult to predict. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, the company increased its bottom line by earning $0.28 versus $0.10 in the prior year. This year, the market expects earnings to improve to $0.40. Its current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. However, when compared with other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, Aixtron's return on equity is below that of both the industry average and the S&P 500. Its growth in net income from the same quarter one year ago also underperformed the S&P 500 and greatly underperformed the Semiconductors & Semiconductor Equipment industry average. Net income in its recent quarterly report fell to $4.13 million from $10.78 million, decreasing significantly by 61.7%. Aixtron had been rated a buy since April 16, 2007.
Computer Sciences ( CSC), which provides information technology (IT) and business process outsourcing, and IT and professional services to the commercial and government markets, was upgraded to buy. Our analysis show the company has a debt-to-equity ratio is somewhat low, currently at 0.64, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.92 is somewhat weak and could be cause for future problems. But we feel these strengths outweigh the fact that the company has had sub-par growth in net income. Since the same quarter one year prior, revenues rose by 10.9% -- slightly outpacing the industry average of 5.4%. The growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. Computer Sciences' earnings per share declined by 20.1% in the most recent quarter compared with the same quarter a year ago. Even though earnings have been volatile recently, we feel it is poised for EPS growth in the coming year. During the past fiscal year, company increased its bottom line to $3.24 from $2.28 in the prior year. This year the market expects the company to earn $4.31, which would result of an increase of about 33%. Computer Sciences had been rated a hold since November 9, 2008. Empresa Distribuidora ( EDN), which operates as an electricity distribution company in Argentina, was initiated with a sell. The rating is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, deteriorating net income and poor profit margins.
The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared with that of the S&P 500 and the Electric Utilities industry. The net income has significantly decreased by 82.5% when compared with the same quarter one year ago, falling to $6.03 million from $34.45 million. The gross profit margin for the company is rather low; currently it is at 23.20%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 4.20% trails that of the industry average. The decrease in margins is one factor that caused Empresa to experience a steep decline in earnings per share in the most recent quarter. This year, the market estimates earnings will improve to $1.77. Weakness in the company's revenue is the other factor that seems to have hurt the bottom line, decreasing its earnings per share. The revenue fell significantly faster than the industry average of 5.0%. Since the same quarter one year prior, revenues fell by 28.7%. Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 55.78% -- underperforming the S&P 500. Consistent with the plunge in the stock price, the company's earnings per share are down 84.33% compared with the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
Additional ratings changes from July 11 are listed below.
|Ticker||Company Name||Change||New Rating||Former Rating|
|AINV||APOLLO INVESTMENT CORP||Downgrade||Hold||Buy|
|ALY||ALLIS-CHALMERS ENERGY INC||Downgrade||Hold||Buy|
|BNE||BOWNE & CO INC||Downgrade||Hold||Buy|
|BRNC||BRONCO DRILLING CO||Downgrade||Hold||Buy|
|CSC||COMPUTER SCIENCES CORP||Upgrade||Buy||Hold|
|EDN||EMPRESA DISTRIBUIDORA Y COM||Initiated||Sell|
|FDO||FAMILY DOLLAR STORES||Upgrade||Buy||Hold|
|GBR||NEW CONCEPT ENERGY INC||Downgrade||Sell||Hold|
|PBNY||PROVIDENT NEW YORK BANCORP||Downgrade||Hold||Buy|
|PCAP||PATRIOT CAPITAL FUNDING INC||Downgrade||Sell||Hold|
|SPG||SIMON PROPERTY GROUP INC||Downgrade||Hold||Buy|