TSC Ratings' Updates: Brown & Brown

The following ratings changes were generated on September 19.

Brown & Brown ( BRO) has been upgraded from hold to buy. Brown & Brown, together with its subsidiaries, operates as a diversified insurance agency, wholesale brokerage, and service organization in the U.S. It operates in four segments: retail, national programs, wholesale brokerage and services. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Net operating cash flow has significantly increased by 154.76% to $116.91 million when compared with the same quarter last year. In addition, BRO has also vastly surpassed the industry average cash flow growth rate of -41.61%.

BRO's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.87 is somewhat weak and could be cause for future problems.

The gross profit margin for BRO is 35.20% which we consider to be strong. Regardless of BRO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BRO's net profit margin of 16.70% compares favorably with the industry average.

BRO, with its decline in revenue, underperformed when compared with the industry average of 10.2%. Since the same quarter one year prior, revenue has slightly dropped by 2.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

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. Compared with other companies in the insurance industry and the overall market, BRO's return on equity exceeds that of both the industry average and the S&P 500.

BRO had been rated a hold since February 12, 2008.

Trustmark ( TRMK) has been upgraded from hold to buy. Trustmark, through its subsidiaries, provides banking and financial solutions to corporate, institutional and individual customers in the states of Florida, Mississippi, Tennessee, and Texas. It operates in three segments: general banking, wealth management and insurance. The company's strengths can be seen in multiple areas, such as its relatively strong performance when compared with the S&P 500 during the past year, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Despite the decline in its share price over the last year, this stock is still more expensive (when compared with its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this.

Net operating cash flow has increased to $33.02 million or 18.78% when compared with the same quarter last year. Despite an increase in cash flow of 18.78%, TRMK is still growing at a significantly lower rate than the industry average of 352.35%.

The gross profit margin for TRMK is rather high; currently it is at 56.30%. Regardless of TRMK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TRMK's net profit margin of 10.40% compares favorably with the industry average.

TRMK, with its decline in revenue, underperformed when compared with the industry average of 11.6%. Since the same quarter one year prior, revenue has slightly dropped by 3.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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. Compared with other companies in the commercial banks industry and the overall market on the basis of return on equity, TRMK has outperformed in comparison with the industry average, but has underperformed when compared with that of the S&P 500.

TRMK had been rated a hold since January 8, 2008.

AllianceBernstein Holding ( AB) has been downgraded from a buy to hold. AllianceBernstein Holding and its subsidiaries provide investment management and relatedservices to institutional clients, retail clients, and private clients in the U.S. and internationally. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

AB 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.

The gross profit margin for AB is currently very high, coming in at 100.00%. AB has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, AB's net profit margin of 90.20% significantly outperformed against the industry.

Despite the weak revenue results, AB has outperformed against the industry average of 41.9%. Since the same quarter one year prior, revenue fell by 15.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

Looking at the price performance of AB's shares over the past 12 months, there is not much good news to report: the stock is down 53.79%, and it has underperformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

Net operating cash flow has declined marginally to $72.49 million or 7.34% when compared to the same quarter last year. In addition, when comparing it with the industry average, the firm's growth rate is much lower.

AB had been rated a buy since September 18, 2006.

ConAgra Foods ( CAG) has been downgraded from buy to hold. ConAgra Foods operates as a packaged food company. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths,we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and poor profit margins.

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the food products industry. The net income increased by 152.2% when compared to the same quarter one year prior, rising from $175.40 million to $442.40 million.

The revenue growth significantly trails the industry average of 36.3%. Since the same quarter one year prior, revenue has slightly increased by 3.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

The debt-to-equity ratio is somewhat low, currently at 0.71, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that CAG's debt-to-equity ratio is low, the quick ratio, which is currently 0.51, displays a potential problem in covering short-term cash needs.

Compared with where it was this time last year, CAG's share price has fallen by 25.56%, reflecting several forces: the overall decline in the broad market; the sharp decline in the company's earnings per share, down 36.11%; and other potential weaknesses. Despite the heavy decline in its share price, this stock is still more expensive (when compared with its current earnings) than most other companies in its industry.

Current return on equity is lower than its return on equity from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the food products industry and the overall market, CAG's return on equity is below that of both the industry average and the S&P 500.

CAG had been rated a buy since January 7, 2008.

Key Energy Services ( KEG) has been downgraded from buy to hold. Key Energy Services, together with its subsidiaries, operates as an onshore, rig-based well servicing contractor in the U.S. and internationally. It operates through three segments: well servicing, pressure pumping services and fishing and rental services. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses includingdeteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Despite its growing revenue, the company underperformed as compared with the industry average of 30.1%. Since the same quarter one year prior, revenue rose by 22.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

KEG's debt-to-equity ratio of 0.64 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that KEG's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.69 is high and demonstrates strong liquidity.

Current return on equity is lower than its return on equity from the same quarter one year prior. This is a clear sign of weakness within the company. Compared with other companies in the energy equipment & services industry and the overall market on the basis of return on equity, KEG has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared with the energy equipment & services industry average, but is greater than that of the S&P 500. The net income has decreased by 8.6% when compared to the same quarter one year ago, dropping from $48.14 million to $44.01 million.

KEG had been rated a buy since April 21, 2008.

Additional ratings changes from September 19 are listed below.
TITLE
SUB
Ticker Company Current Change Previous
AB AllianceBernstein Holding HOLD Downgrade BUY
ACFC Atlantic Coast Federal SELL Downgrade HOLD
BKCC BlackRock Kelson Capital Corp. HOLD Upgrade SELL
BRO Brown&Brown Inc. BUY Upgrade HOLD
CAG ConAgra Foods HOLD Downgrade BUY
CHE Chemed Corp. BUY Upgrade HOLD
FGOC FirstGold Corp. SELL Initiated
FPU Florida Public Utilities HOLD Downgrade BUY
HNBC Harleysville National Corp. BUY Upgrade HOLD
INDB Independent Bank Corp. BUY Upgrade HOLD
ITSI International Lottery & Totalizator Systems HOLD Upgrade SELL
JOSB Jos. A Bank Clothiers BUY Upgrade HOLD
KEG Key Energy Services HOLD Downgrade BUY
MAD Madeco S.A. HOLD Downgrade BUY
MNDL Mandalay Media Inc. SELL Initiated
REPR Repro-Med Systems SELL Downgrade HOLD
REV Revlon Inc. HOLD Upgrade SELL
TRMK Trustmark Corp. BUY Upgrade HOLD
TRST TrustCo. Bank Corp. BUY Upgrade HOLD
TSCO Tractor Supply Co. BUY Upgrade HOLD
UBFO United Security Bancshares HOLD Downgrade BUY
UNTD United Online HOLD Downgrade BUY
VALU Value Line Inc. BUY Upgrade HOLD
VPS Vermont Pure Holdings HOLD Upgrade SELL

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.

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

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