The following ratings changes were generated on Friday, Oct. 17.

We've downgraded AK Steel Holding ( AKS) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. Weaknesses include poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself.

Revenue grew by 19.6% since the same quarter one year ago, trailing significantly the industry average of 72.2% but still boosting EPS. The 0.51 debt-to-equity ratio is low and below the industry average, implying successful management of debt levels. The company also maintains an adequate quick ratio of 1.06, which illustrates the ability to avoid short-term cash problems.

AK Steel's gross profit margin of 15.4% has decreased from the same quarter last year and is rather low. Its net profit margin of 6.5% significantly trails the industry average. Net operating cash flow has decreased to $161.20 million, or 36.70%. In addition, when comparing the cash generation rate with the industry average, the firm's growth is significantly lower.

We've downgraded Quest Diagnostics ( DGX), which provides diagnostic testing, information and services that enable physicians and other healthcare professionals to make decisions to improve health, from buy to hold. Strengths include the company's revenue growth, higher earnings, higher cash levels, sound leverage, and key business initiatives. Weaknesses include declining operating margin and diminishing returns. In addition, frequent changes in laws and regulations in the U.S. may negatively impact the company's future performance.

Quest Diagnostics' net second-quarter sales advanced 12%, with the acquisitionAmeriPath adding about 8.1% to the growth. Revenue increased to $1.84 billion from $1.64 billion a year ago. Revenue from clinical testing rose 12.4% to $1.68 billion, while revenue from other operating segments climbed 8.3% to $161.41 million. Revenue per requisition increased 7.1%, and clinical testing volume, measured by the number of requisitions, rose 4.9%. Cash and cash equivalents jumped to $143.40 million from $122.30 million in the comparable quarter of last year. The debt-to-equity ratio improved to 0.89 from 1.23 as total debtdeclined and shareholders' equity increased 15% to $3.67 billion.

Selling, general and administrative expenses advanced 10.9% to $438.04 million from $395.11 million a year ago. Amortization expenses surged 85.3%. Operating margindeclined to 16.67% from 16.78%. Returns declined despite an increase in net income. Return on equity narrowed 114 basis points to 16.56% from 17.70%. Return on assets contracted 197 basis points to 4.59% from 6.56%.

Quest entered the Indian insurance sector by becoming the sole provider of health assessment services for Birla Sun Life Insurance. The Indian premium market is expected to more than double to $80 billion to $100 billion by 2012. The company raised its estimate for fiscal-year 2008 EPS from continuing operations to be in the range of $3.10 to $3.20 on revenue growth of about 9%.

We've downgraded Hanesbrands ( HBI) from hold to sell, driven byits generally weak debt management, weak operating cash flow and generally disappointing historical performance in the stock itself.

The debt-to-equity ratio is very high at 6.08 and currently higher than the industry average, implying very poor management of debt levels within the company. Hanesbrand maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.Net operating cash flow has significantly decreased to -$30.48 million, or 129.83%, when compared with the same quarter last year. In addition, the firm's growth rate is much lower than the industry average.

Since the same quarter one year prior, revenue slightly dropped by 4.4%, but EPS increased nonetheless. Hanesbrands' 38.4% gross profit margin is strong and has increased from the same quarter last year. Its net profit margin of 5.3%, however, trails the industry average. Shares are down 44.3% on the year, underperforming the S&P 500. This decline could help make the stock attractive down the road, but we believe that it is too soon to buy.

We've downgraded Southwest Airlines ( LUV) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debtlevels by most measures and reasonable valuation levels. Weaknesses include deteriorating net income, poor profit margins and weak operating cash flow.

Revenue rose by 11.7% since the same quarter last year, outpacing the industry average of 4.2%, but EPS declined. The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying successful management of debt levels. The 0.68 quick ratio, however, displays a potential problem in covering short-term cash needs.

Net operating cash flow has significantly decreased to -$2,276.00 million, or 1577.92%, compared with the same quarter last year. In addition, the firm's growth rate is much lower than the industry average. Net income has decreased by 174.7%, from $162 million to -$121 million, significantly underperforming when the S&P 500 and the airlines industry. The net income hassignificantly decreased by 174.7% when compared to the same quarter one year ago, falling from

We've downgraded hard drive developer Western Digital ( WDC) from buy to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. Weaknesses include poor profit margins and a decline in the stock price during the past year.

Revenue rose by 45.8%, but EPS in the most recent quarter were stagnant. The company's debt-to-equity ratio of 0.19 is very low but is currently higher than the industry average. It also maintains an adequate quick ratio of 1.35, which illustrates the ability to avoid short-term cash problems. During the past fiscal year, Western Digital increased its bottom line by earning $3.83 vs. $2.50 in the prior year. For the next year, the market expects a contraction of 12% in earnings, to $3.37. Gross profit margin of 27%, while an increase over last year, is lower than desirable. Net profit margin of 10.7% is significantly lower than the same period last year.

Shares have plunged 37.25% on the year, apparently dragged down in part by the decline we have seen in the S&P 500. In one sense, the decline 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.

Other ratings changes include Vale ( RIO), downgraded from buy to hold, and Cubist Pharmaceuticals ( CBST), upgraded from hold to buy.

All ratings changes generated on Oct. 17 are listed below.
Ticker Company Current Change Previous
AAP Advance Auto Parts HOLD Downgrade BUY
AKS AK Steel Holding HOLD Downgrade BUY
BAP CrediCorp HOLD Downgrade BUY
BITS Bitstream HOLD Downgrade BUY
BKMU Bank Mutual HOLD Downgrade BUY
CBC Capitol Bancorp SELL Downgrade HOLD
CBST Cubist Pharmaceuticals BUY Upgrade HOLD
CPNO Copano Energy HOLD Downgrade BUY
CTV CommScope HOLD Downgrade BUY
DGX Quest Diagnostics HOLD Downgrade BUY
FNF Fidelity National Financial SELL Downgrade HOLD
FTR Frontier Communications HOLD Downgrade BUY
GDP Goodrich Petroleum SELL Downgrade HOLD
GFLBB Great Florida Bank SELL Initiated
HARL Harleysville Savings Financial HOLD Upgrade SELL
HBI Hanesbrands SELL Downgrade HOLD
HCC HCC Insurance Holdings HOLD Downgrade BUY
HNBC Harleysville National HOLD Downgrade BUY
HOS Hornbeck Offshore Services HOLD Downgrade BUY
IX Orix SELL Downgrade HOLD
KMP Kinder Morgan Energy HOLD Downgrade BUY
LPNT Lifepoint Hospitals HOLD Downgrade BUY
LUV Southwest Airlines HOLD Downgrade BUY
LZ Lubrizol HOLD Downgrade BUY
MAYS J.W. Mays SELL Downgrade HOLD
MCHP Microchip Technology HOLD Downgrade BUY
MSW Mission West Properties SELL Downgrade HOLD
NM Navios Maritime Holdings HOLD Downgrade BUY
NRT North European Oil Royalty Trust HOLD Downgrade BUY
PAS PepsiAmericas HOLD Downgrade BUY
PESI Perma-Fix Environmental Services SELL Downgrade HOLD
RECN Resources Connection HOLD Downgrade BUY
RIO Companhia Vale do Rio Doce HOLD Downgrade BUY
SHOR Shoretel HOLD Upgrade SELL
SI Siemens HOLD Downgrade BUY
STN Stantec HOLD Downgrade BUY
TRV Travelers HOLD Downgrade BUY
UACL Universal Truckload Services HOLD Downgrade BUY
VSR Versar HOLD Downgrade BUY
VVUS Vivus HOLD Downgrade BUY
WBD Wimm-Bill-Dann Foods HOLD Downgrade BUY
WDC Western Digital HOLD Downgrade BUY

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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