The following ratings changes were generated on Wednesday, Oct. 8.We downgraded America Movil ( AMX), a wireless communications provider in Latin America, from buy to hold. It exhibits robust revenue growth, notable return on equity and growth in earnings per share, but weaknesses include poor debt management and a generally disappointing stock performance. At 19% year over year, revenue growth came in higher than the industry average of 6.3%, helping to boost EPS by 25% to $3.06 in the most recent quarter compared with $2.24 a year ago. The company's two-year positive pattern of EPS growth should continue, suggesting improvement in business performance. This year, the market expects further improvement to $3.66. The gross profit margin for America Movil is rather high at 58.5%, having increased from the same quarter the previous year. However, the net profit margin of 20.8% trails the industry average.
We've downgraded Canadian Natural Resources ( CNQ), a Canada-based senior independent energy company, from buy to hold. Strengths include robust revenue growth, good cash flow from operations and a largely solid financial position with reasonable debt levels by most measures. However, we also find weaknesses such as a decline in the stock price during the past year, deteriorating net income and disappointing return on equity. Canadian Natural's impressive revenue growth exceeded the industry average of 32%, leaping by 56.8% since the same quarter one year prior, but this growth does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. Net operating cash flow has increased to $2.17 billion, or 32.51%, when compared with the same quarter last year, which exceeds the industry average cash flow growth rate of 22.17%. The gross profit margin for Canadian Natural is rather high at 58.5% but is a decrease from the same period last year. Despite the mixed results of the gross profit margin, the company's net profit margin of -7.80% significantly underperformed the industry average. The company's net income has decreased by 141.3%, from $841 million to -$347 million, from the same quarter a year ago, significantly underperforming the S&P 500 and the oil, gas and consumable fuels industry. Shares have fallen by 34.52% on the year, reflecting the overall decline in the broad market and the sharp decline in EPS, down 141.66%. But don't assume that Canadian Resources can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, the company is still more expensive than most of the other companies in its industry.
We've downgraded CNX Gas ( CXG) from hold to sell, driven by the generally disappointing historical stock performance in the natural gas explorer's stock. Shares are down 43.7% on the year, underperforming the S&P 500, but based on its current price in relation to its earnings, CNX is still more expensive than the industry average. During the past fiscal year, CNX reported EPS of 90 cents vs. $1.05 in the prior year, and the market expects an improvement to $1.59 this year. The company's debt-to-equity ratio is very low at 0.11 and is currently below the industry average, implying successful management of debt levels. The company's 0.39 quick ratio, however, is weak, demonstrating a lack of ability to pay short-term obligations. Return on equity has improved slightly when compared with the same quarter one year prior, implying modest strength. Based on return on equity, CNX underperforms the oil, gas and consumable fuels industry but outperforms the S&P 500. It's 70.1% gross profit margin is high but a decrease from the same period last year. Its net profit margin of 31.2% significantly outperformed against the industry. We 've downgraded Darden Restaurants ( DRI) from buy to hold based on strengths such as robust revenue growth, attractive valuation levels and good cash flow from operations as well as weakness that include unimpressive growth in net income, poor profit margins and a generally disappointing stock performance. Darden's revenue growth or 20.9% over the same quarter last year has slightly outpaced the industry average of 20.5%, but it does not appear to have trickled down to the company's bottom line, displayed by a decline in EPS. Net operating cash flow has slightly increased to $161.30 million, or 1.76%, when compared with the same quarter last year, but its cash flow growth rate is still lower than the industry average growth rate of 28.52%. At 21.5%, Darden's gross profit margin is rather low, having decreased from the same quarter last year. In addition, the 4.6% net profit margin significantly trails the industry average. Based on net income, which decreased by 22.5% to $82.1 million over the same quarter last year, Darden has significantly underperformed the hotels, restaurants and leisure industry average but outperformed the S&P 500.
We downgraded Teck Cominco ( TCK), which engages primarily in the exploration for and development and production of natural resources, from hold to sell based on generally disappointing stock performance and feeble EPS growth. Shares are down 64.6% on the year, an underperformance of the S&P 500, demonstrating that 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 have been a significant factor, and 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. Nevertheless, we feel the stock is still not a good buy right now. During the past fiscal year, Teck Cominco's earnings fell from $4.49 to $3.84. Its net income increased by 2.5%, from $485 million to $497 million, significantly underperforming the metals and mining industry but outperforming the S&P 500. Return on equity has decreased from the same quarter a year ago, a signal of major weakness within the corporation, but it nevertheless outperforms the industry and the S&P 500. At 52.6%, Teck Cominco's gross profit margin has decreased from the same period last year but remains rather high. Its net profit margin of 26.6%, however, compares favorably with the industry average. Other ratings changes include Newfield Exploration ( NFX) and Smart Balance ( SMBL), both of which we downgraded from hold to sell. All ratings changes generated on Oct. 8 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.
|ARTG||Art Technology Group||HOLD||Downgrade||BUY|
|BR||Broadridge Financial Solutions||SELL||Downgrade||HOLD|
|BSI||Blue Square Israel||HOLD||Downgrade||BUY|
|CNQ||Canadian Natural Resources||HOLD||Downgrade||BUY|
|EEP||Enbridge Energy Partners||HOLD||Downgrade||BUY|
|NRP||Natural Resource Partners||HOLD||Downgrade||BUY|
|SLF||Sun Life Financial||HOLD||Downgrade||BUY|
|WATG||Wonder Auto Technology||SELL||Downgrade||HOLD|