TSC Ratings' Updates: Cisco

The following ratings changes were generated on Thursday, Oct. 23.

We've downgraded Cisco Systems, designs, manufactures andsells IP-based networking products, from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, the stock has had a generally disappointing performance in the past year.

Revenue growth of 9.9% since the same quarter one year ago greatly exceeded the industry average of 27.7%, improving EPS. Cisco's 0.20 debt-to-equity ratio is very low but is nonetheless higher than the industry average. Its quick ratio of 2.23 demonstrates an ability to cover short-term liquidity needs. Return on equity has improved slightly over the same quarter last year, outperforming the S&P 500 but underperforming the communications equipment industry. Gross profit margin of 67% is rather high but has decreased since the same period last year. Net profit margin of 19.4% compares favorably to the industry average.

Shares have plunged by 44.51% on the year. Naturally, the overall market trend is bound to be a significant factor, and the stock's sharp decline last year could be a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. However, we feel the stock is still not a good buy right now.

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

Since the same quarter one year prior, revenues slightly increased by 5.2%, underperforming the industry average of 14%. DuPont's debt-to-equity ratio of 0.82 is somewhat low overall is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. The company's quick ratio of 1.02 is sturdy. Net operating cash flow has decreased to $927.00 million, or 11.12% when compared with the same quarter last year. Net income has decreased by 30.2% since the same quarter a year ago, significantly underperforming the chemicals industry average but outperforming the S&P 500.

We've downgraded pharmaceutical company GlaxoSmithKline ( GSK) from buy to hold. Strengths include its notable return on equity and expanding profit margins. Weaknesses include deteriorating net income, generally poor debt management and weak operating cash flow.

Current return on equity exceeded that from the same quarter one year prior as well as both the pharmaceutical industry average and the S&P 500, a clear sign of strength within the company. The gross profit margin is currently very high, coming in at 74.70%, but is a decrease from the same period last year. Net profit margin of 15.90% trails the industry average.The revenue fell by 30.8%, significantly faster than the industry average of 11.7%.

Net income fell 53.6% when compared with the same quarter a year go, from $2,763.77 million to $1,283.42 million. Shares have plunged 27.87% over the past year, and EPS have sunk 48.48% compared with the year-earlier quarter. The stock's sharp decline last year could a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in itsIndustry, but we feel the stock is still not a good buy right now.

We've downgraded toy company Mattel ( MAT) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also findweaknesses including weak operating cash flow and disappointing return on equity.

Revenue growth of 4.8% since the same quarter last year has slightly outpaced the industry average of 2.1%. The current debt-to-equity ratio, 0.59, is low and is below the industry average, implying that there has been successful management of debt levels. The company also maintains an adequate quick ratio of 1.11, which illustrates the ability to avoid short-term cash problems.EPS have risen by 8.2% 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 thepast two years, but we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, Mattel increased its bottom line by earning $1.59 vs. $1.55 in the prior year, but for the next year, the market is expecting a contraction of 15.1% in earnings to $1.35.

The company's current return on equity has slightly decreased from the same quarter one year prior, undeperfoming the leisure equipment and products industry but outperforming the S&P 500. This implies a minor weakness in the organization. Net operating cash flow has decreased to -$137.32 million, or 14.98% when compared with the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

We've downgraded Polo Ralph Lauren ( RL), which engages in the design, marketing, and distribution of lifestyle products, from buy to hold. Strengths include its growth in earnings per share, increase in net income and revenue growth. Weaknesses include a decline in the stock price during the past year and disappointing return on equity.

EPS have risen by 13.4% 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 two years that we feel should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, Polo Ralph Lauren increased its bottom line by earning $3.99 vs. $3.73 in the prior year. This year, the market expects an improvement in earnings to $4.09. The net income increased by 7.8% when compared to the same quarter one year prior, from $88.30 million to $95.20 million, outperforming the S&P 500 and the textiles, apparel and luxury goods industry average.

Return on equity has slightly decreased from the same quarter one year ago, underperforming the industry average but outperforming the S&P 500. The gross profit margin is rather high; currently it is at 57.30%, having increased from the same quarter the previous year, but the net profit margin of 8.50% trails the industry average. Shares plunged by 35.54% over the year. This decline 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.

Other ratings changes include Ingersoll-Rand ( IR) and Jones Apparel Group ( JNY), both downgraded from hold to sell.

All ratings changes generated on Oct. 23 are listed below.
Ticker Company Current Change Previous
ADP Automatic Data Processing HOLD Downgrade BUY
AFG American Financial Group HOLD Downgrade BUY
AIRT Air T HOLD Downgrade BUY
AIZ Assurant HOLD Downgrade BUY
ALC Assisted Living Concepts SELL Downgrade HOLD
ANCX Access National HOLD Upgrade SELL
ATW Atwood Oceanics HOLD Downgrade BUY
AXS Axis Capital HOLD Downgrade BUY
BIDZ Bidz.com SELL Downgrade HOLD
BLKB Blackbaud HOLD Downgrade BUY
BPOP Popular SELL Downgrade HOLD
CBE Cooper Industries HOLD Downgrade BUY
CLR Continental Resources SELL Downgrade HOLD
CNX Consol Energy HOLD Downgrade BUY
COCO Corinthian Colleges HOLD Downgrade BUY
CRZO Carrizo Oil & Gas SELL Downgrade HOLD
CSCO Cisco Systems HOLD Downgrade BUY
CSGP Costar Group HOLD Downgrade BUY
DD DuPont HOLD Downgrade BUY
DRC Dresser-Rand HOLD Downgrade BUY
DVR Cal Dive SELL Downgrade HOLD
EMN Eastman Chemical HOLD Downgrade BUY
ESV Ensco HOLD Downgrade BUY
EYE Advanced Medical Optics SELL Downgrade HOLD
FOSL Fossil HOLD Downgrade BUY
FPFC First Place Financial SELL Downgrade HOLD
GGB Gerdau HOLD Downgrade BUY
GIFI Gulf Island Fabrication HOLD Downgrade BUY
GSK GlaxoSmithKline HOLD Downgrade BUY
HMNF HMN Financial SELL Downgrade HOLD
IR Ingersoll-Rand SELL Downgrade HOLD
IXYS IXYS HOLD Downgrade BUY
JBX Jack in the Box HOLD Downgrade BUY
JNY Jones Apparel Group SELL Downgrade HOLD
KTC KT SELL Downgrade HOLD
MAT Mattel HOLD Downgrade BUY
MCK McKesson HOLD Downgrade BUY
MIDD Middleby HOLD Downgrade BUY
MIL Millipore HOLD Downgrade BUY
MTOX Medtox Scientific HOLD Downgrade BUY
MTRX Matrix Service HOLD Downgrade BUY
MWA Mueller Water Products SELL Downgrade HOLD
NTRS Northern Trust HOLD Downgrade BUY
PEET Peet's Coffee & Tea HOLD Downgrade BUY
PH Parker-Hannifin HOLD Downgrade BUY
PII Polaris Industries HOLD Downgrade BUY
POM Pepco Holdings HOLD HOLD BUY
PQ Petroquest Energy HOLD Downgrade BUY
PRAA Portfolio Recovery HOLD Downgrade BUY
PWRD Perfect World SELL Downgrade HOLD
RFIL RF Industries HOLD Downgrade BUY
RICK Rick's Caberet HOLD Downgrade BUY
RL Polo Ralph Lauren HOLD Downgrade BUY
RSTI Rofin Sinar HOLD Downgrade BUY
RYN Rayonier HOLD Downgrade BUY
SAP SAP HOLD Downgrade BUY
SRE Sempra Energy HOLD Downgrade BUY
TER Teradyne SELL Downgrade HOLD
TNE Tele Norte Leste HOLD Downgrade BUY
UNM Unum Group HOLD Downgrade BUY
VIST VIST Financial SELL Downgrade HOLD
VR Validus SELL Downgrade HOLD
VSEA Varian Semiconductor HOLD Downgrade BUY
VVC Vectren HOLD Downgrade BUY
WINN Winn-Dixie Stores SELL Downgrade HOLD
WLFC Willis Lease Finance HOLD Downgrade BUY
WOOF VCA Antech HOLD Downgrade BUY
WTS Watts Water Technologies 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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