The following ratings' changes were generated on October 1. Fairfax Financial Holdings ( FFH) has been upgraded from hold to buy. Fairfax Financial Holdings Limited, through its subsidiaries, engages in property and casualty insurance and reinsurance, investment management, and insurance claims management businesses. The company also provides claims adjusting, appraisal, and loss management services. FFH registered strong financial performance and had a strong liquidity position at the end of fiscal year 2007. In addition, FFH offers superior returns to its shareholders. For the full year 2007, FFH's total revenue increased 10.0% to $7.48 billion due to higher gains on investments, higher interest and dividends as well as increased claim fees. Portfolio investments increased 12.6% to $19.09 billion at the end of fiscal year 2007 vs. fiscal year 2006. The combined ratio improved from 95.5% to 94.0% in fiscal year 2007, mainly due to lower claims and losses. As a result, the company's underwriting profit increased 32.3% to $281.30 million. In total, the company registered a net profit of $1.09 million vs. an income of $227.50 million in a year-ago period. The company continued to reduce its debt through open market purchases. In October 2007, the company completed an offering of $330.00 million of 7-3/4% Senior Notes due May 1, 2017 (2017 Notes) to purchase its costlier 10-3/8% Senior Notes due 2013 (2013 Notes); for a total consideration of approximately $325.70 million. Adding to this, the company had an impressive cash and equivalent balance of $4.18 billion as of second quarter fiscal year 2007 end. The current liquidity position allows FFH to cover unforeseen negativity and freedom from the reliance on external funds.
FFH return-on-equity jumped from 7.56% to 25.44% at the end of fourth quarter fiscal year 2007 and surpassed the average of both the Industry and S&P 500. The growth in ROE was driven by higher earnings over the last twelve month. In addition, on September 20, 2007, FFH announced its intentions to make a Normal Course Issuer Bid for up to 1.0 million of its subordinate voting shares through the facilities of the Toronto Stock Exchange and the New York Stock Exchange. This should boost its ROE looking forward. Principal risks to our buy rating on the stock include the negative impact of an unfavorable change in interest rates and equity prices, pressure on premium rates resulting from competition, as well as unexpected catastrophic events. FFH had been rated a hold since August 7, 2008. Sotheby's ( BID) has been downgraded from buy to hold. Sotheby's, together with its subsidiaries, operates as an auctioneer of fine art, antiques and decorative art, and jewelry and collectibles primarily in the U.S., the United Kingdom, and China. The company operates in three segments: auction, finance, and dealer. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and disappointing return on equity. The gross profit margin for Sotheby's is rather high; currently it is at 58.90%. Regardless of BID's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BID's net profit margin of 29.80% significantly outperformed against the industry.
BID, with its decline in revenue, slightly underperformed the industry average of 0.5%. Since the same quarter one year prior, revenue slightly dropped by 5.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. Net operating cash flow has significantly decreased to -$23.26 million or 112.09% when compared to the same quarter last year. In addition, when comparing with the industry average, the firm's growth rate is much lower. The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared with the diversified consumer services industry average, but is greater than that of the S&P 500. The net income has decreased by 11.2% when compared with the same quarter one year ago, dropping from $107.35 million to $95.33 million. BID had been rated a buy since August 19, 2008. Ferrell Gas Partners ( FGP) gas veeb downgraded from buy to hold. Ferrellgas Partners, L.P., through its subsidiary, distributes propane and related equipment and supplies primarily in the U.S. The company's strengths can be seen in multiple areas, such as its revenue growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year, deteriorating net income and generally poor debt management. FGP's revenue growth has slightly outpaced the industry average of 26.7%. Since the same quarter one year prior, revenues rose by 27.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
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 gas utilities industry and the overall market on the basis of return on equity, FGP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500. FGP reported flat earnings per share in the most-recent quarter. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FGP reported lower earnings of $0.34 versus 42 cents in the prior year. This year, the market expects an improvement in earnings (75 cents vs. 34 cents). The gross profit margin for FGP is currently extremely low, coming in at 6.60%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -9.20% is significantly below that of the industry average. FGP is off 19.74% from its price level of one year ago, reflecting the general market trend and ignoring their higher earnings per share compared with the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock. FGP had been rated a buy since June 2, 2008.
Public Enterprise Group ( PEG) has been downgraded from buy to hold. Public Service Enterprise Group, through its subsidiaries, engages in the transmission, distribution, and sale of electric energy and natural gas to commercial, residential, and industrial customers primarily in theNortheastern and Mid Atlantic United States. Our recommendation is based on the company's strong revenue as well as earnings growth, expanding margins, and improved returns. Additionally, the company provided a positive outlook and it expects to benefit from its recent rate increase proposals. However, downside risks to the rating include declining cash balances, unfavorable weather conditions, and rising energy costs which may negatively impact its future performance. Public Service Enterprise Group's total operating revenue for first quarter fiscal year 2008 edged up 8.4% to $3.80 billion year over year attributed to strong revenue growth in public service electric & gas (PSE&G) and PSEG Power segments. While, the PSE&G segment's operating revenue increased 5.3% to $2.62 billion; PSEG Power operating revenue spiked 10.5% to $2.38 billion. Gross profit margin during the quarter increased 97 basis points to 26.43% and operating margin expanded 135 basis points to 21.33%. Consequently, the company's net income shot up 36.1% to $449.00 million or 85 cents per share benefiting from higher contract prices and increased output at its PSEG Power subsidiary. The company's return on assets expanded 215 basis points to 5.21%; whereas return on equity swelled 723 basis points to 19.11% positively impacted by higher earnings. For fiscal year 2008, PEG targets its operating earnings guidance to be in the range of $2.80 per share to $3.05 per share, 8.0% higher than its fiscal year 2007 operating earnings.
Recently, PSE&G requested the Federal Energy Regulatory Commission for a marginal hike in transmission rates as the company expects to spend $1.60 billion in new transmission facilities over the next five to eight years. PSE&G also proposed to the New Jersey Board of Public Utilities (BPU) for a 20.0% increase in residential gas bills to counter the rise in the wholesale cost of natural gas. The company's quick ratio is low at 0.49. Furthermore, dwindling cash balances may hurt its future growth prospects. Other factors including changes in commodity prices and unfavorable weather conditions, which may also hamper its operations in the future. PEG had been rated a buy since November 2, 2006. Red Hat ( RHT) has been downgraded from buy to hold. Red Hat, Inc., together with its subsidiaries, provides open source software solutions to enterprises. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity. The revenue growth came in higher than the industry average of 15.4%. Since the same quarter one year prior, revenue rose by 29.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. RHT has improved earnings per share by 11.1% in the most-recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, RHT increased its bottom line by earning 37 cents vs. 29 cents in the prior year. This year, the market expects an improvement in earnings (73 cents vs. 37 cents).
The gross profit margin for RHT is currently very high, coming in at 89.20%. Regardless of RHT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, RHT's net profit margin of 12.90% is significantly lower than the same period one year prior. 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 with the other companies in the software industry and the overall market, RHT's return on equity is significantly below that of the industry average and is below that of the S&P 500. RHT is off 24.16% from its price level of one year ago, reflecting the general market trend and ignoring their higher earnings per share compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry. RHT had been rated a buy since October 26, 2007. The remaining ratings' changes generated on October 1 are listed below.
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.
|ANCI||American Caresource Holdings||HOLD||Upgrade||SELL|
|BDR||Blonder Tongue Labs||HOLD||Upgrade||SELL|
|BTN||Ballantyne of Omaha||SELL||Downgrade||HOLD|
|CY||Cypress Semiconductor Corp.||HOLD||Downgrade||BUY|
|FFH||Fairfax Financial Holdings||BUY||Upgrade||HOLD|
|FGP||Ferrelgas Partners LP||HOLD||Downgrade||BUY|
|GBR||New Concept Energy||HOLD||Upgrade||SELL|
|KMGB||KMG Chemicals Inc.||HOLD||Downgrade||BUY|
|LAB||LaBranche & Co.||SELL||Downgrade||HOLD|
|MLNK||MODUSLINK GLOBAL Solutions||SELL||Downgrade||HOLD|
|OMPI||Obagi Medical Products||HOLD||Upgrade||SELL|
|PEG||Public Services Group||HOLD||Downgrade||BUY|
|RHT||Red Hat Inc.||HOLD||Downgrade||BUY|
|STEL||Stellar One Corp.||BUY||Upgrade||HOLD|
|SUG||Southern Union Corp.||HOLD||Downgrade||BUY|