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 Friday, Aug. 8.

First up is toymaker Mattel ( MAT - Get Report), which we upgraded to buy from hold. The upgrade is prompted 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 El Segundo, Calif., company's revenue growth came in higher than the industry average of 5.1%. Since the same quarter one year prior, revenue increased by 9.1%. Growth in revenue, however, does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share (EPS).

The current debt-to-equity ratio, 0.44, is low and 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 1.17, which illustrates the ability to avoid short-term cash problems.

The 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. In comparison to other companies in the leisure equipment and products industry and the overall market on the basis of return on equity, Mattel has underperformed in comparison with the industry average but has greatly exceeded that of the S&P 500.

We consider its gross profit margin of 48.1% strong. Regardless of Mattel's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.1% trails the industry average.

Mattel's EPS declined by 50% year-over-year in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Mattel increased its bottom line by earning $1.59 a share, vs. $1.55 in the prior year. For the next year, the market is expecting a contraction of 8.8% in earnings ($1.45/share, vs. $1.59/share).

Mattel had been rated a hold as of April 22.

Next up is HealthSouth ( HLS), which we upgraded to hold from sell. Based out of Birmingham, Ala., this health-care firm operates inpatient rehabilitation centers and long-term acute care hospitals. The primary factors that have impacted our rating change are mixed -- some indicating strength and 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.

HealthSouth's revenue growth has slightly outpaced the industry average of 3.5%. Since the same quarter one year prior, revenue slightly increased by 6.4%. Growth in the company's revenue appears to have helped boost EPS.

Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.73 is weak.

HealthSouth reported significant EPS improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive EPS growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, HealthSouth turned its bottom line around by earning $2.20 a share, vs. -$7.05 a share in the prior year. For the next year, the market is expecting a contraction of 81.4% in earnings (41 cents a share, vs. $2.20 a share).

The gross profit margin for HealthSouth, 17.8%, is rather low. Regardless of the low profit margin, it has managed to increase from the same period last year. Despite the mixed results, HealthSouth's net profit margin of 9.6% compares favorably to the industry average.

The company, on the basis of change in net income year-over-year, has significantly underperformed when compared to that of the S&P 500 and the health care providers and services industry. Net income has significantly decreased by 90.6% when compared year-over-year, falling from $468.2 million to $44.1 million.

HealthSouth had been rated a sell since Aug. 7, 2006.

Atlanta-based Mueller Water Products ( MWA - Get Report) was upgraded to hold from sell. The firm is a producer of various water infrastructure used in water distribution networks. The primary factors that have impacted our rating are mixed -- some indicating strength and 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 net income growth year-over-year has significantly exceeded that of the S&P 500 and the overall machinery industry. Net income increased by 1,661.5% over the same quarter one year prior, rising from -$1.30 million to $20.3 million.

Mueller's revenue growth trails the industry average of 16.9%. Since the same quarter one year prior, revenue slightly increased by 5.2%. Growth in the company's revenue appears to have helped boost its EPS.

The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the machinery industry and the overall market, Mueller Water Products' return on equity is significantly below that of the industry average and is below that of the S&P 500.

The gross profit margin for Mueller is currently lower than what is desirable, coming in at 27.7%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.8% trails that of the industry average.

We initiated Mueller with a sell rating on June 27, 2007.

Getting downgraded to hold from buy was BT Group ( BT). The London-based technology company specializes in providing communications solutions. The primary factors that have impacted our rating are mixed -- some indicating strength and 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.

BT's revenue growth trails the industry average of 22.4%. Since the same quarter one year prior, revenue slightly increased by 2.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in EPS.

The 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. Compared to other companies in the diversified telecommunication services industry and the overall market, BT Group's return on equity significantly exceeds that of both the industry average and the S&P 500.

BT's EPS declined by 29.2% year-over-year in the most recent quarter. The company has reported a trend of declining EPS over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, BT reported lower earnings of $4.17 a share, vs. $6.61 a share in the prior year. This year, the market expects an improvement in earnings (EPS of $4.58, vs. $4.17).

The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the diversified telecommunication services industry average. The net income has significantly decreased by 35.1% when compared to the same quarter one year ago, falling from $1.2 billion to $790.3 million.

The debt-to-equity ratio is very high at 4.14 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, BT maintains a poor quick ratio of 0.71, which illustrates the inability to avoid short-term cash problems.

BT had been rated a buy since Feb. 13, 2007.

Finally, DCT Industrial ( DCT), a Denver-based real estate investment trust (REIT), was downgraded to sell from hold. This ratings change is driven by a number of negative factors, which we believe should have a greater impact than any strength and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover.

Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 28.7%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's EPS are down 80% compared to 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.

The gross profit margin for DCT Industrial Trust is rather low; currently it is at 22.1%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 24.2% is above that of the industry average.

DCT has experienced a steep decline in EPS in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DCT turned its bottom line around by earning 18 cents a share, vs. -92 cents a share in the prior year. For the next year, the market is expecting a contraction of 66.7% in earnings (6 cents a share, vs. 18 cents).

Compared to other companies in the REIT industry and the overall market on the basis of return on equity, DCT Industrial underperformed against that of the industry average and is significantly less than that of the S&P 500.

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the REIT industry. The net income increased by 97.7% when compared to the same quarter one year prior, rising from $7.84 million to $15.50 million.

DCT had been rated a hold as of April 8.

Additional ratings changes from Aug. 8 are listed below.

Ticker Company Name Change New Rating Former Rating
ACLI American Commercial Lines Downgrade Sell Hold
ARTG Art Technology Group Upgrade Buy Hold
BT BT Group Downgrade Hold Buy
CFW Cano Petroleum Downgrade Sell Hold
CPLP Capital Product Partners Initiated Sell
CWEI Clayton Williams Energy Downgrade Hold Buy
DCT DCT Industrial Trust Downgrade Sell Hold
DSCI Derma Sciences Downgrade Sell Hold
DYN Dynegy Downgrade Sell Hold
EAC Encore Acquisition Downgrade Hold Buy
ENZ Enzo Biochem Upgrade Hold Sell
ENZN Enzon Pharmaceuticals Upgrade Hold Sell
FCEN 1st Centennial Bancorp Downgrade Sell Hold
GAP Great Atlantic & Pacific Tea Downgrade Sell Hold
GLBL Global Industries Downgrade Hold Buy
HLCS Helicos BioSciences Corp. Initiated Sell
HLS HealthSouth Upgrade Hold Sell
KNXA Kenexa Upgrade Buy Hold
MAT Mattel Upgrade Buy Hold
MGAM Multimedia Games Downgrade Sell Hold
MTU Mitsubishi UFJ Financial Group Upgrade Hold Sell
MWA Mueller Water Products Upgrade Hold Sell
NICE NICE Systems Downgrade Hold Buy
PAA Plain All American Pipeline Downgrade Hold Buy
PCAP Patriot Capital Funding Upgrade Hold Sell
PNS Pinnacle Data Systems Downgrade Sell Hold
PVA Penn Virginia Downgrade Hold Buy
SDIX Strategic Diagnostics Downgrade Sell Hold
TU TELUS Downgrade Hold Buy

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