The following ratings changes were generated on Thursday, Oct. 24. We've downgraded Aflac ( AFL), which, through its subsidiaries, engages in the marketing and sale of supplemental health and life insurance in the U.S. and Japan, from buy to hold. Strengths include its largely solid financial position with reasonable debt levels by most measures and notable return on equity. Weaknesses include a decline in the stock price during the past year, deteriorating net income and poor profit margins. Aflac's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying very successful management of debt levels. The return on equity has improved slightly when compared with the same quarter one year prior, exceeding the industry average and the S&P 500. Aflac has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, Aflac increased its bottom line by earning $3.31 vs. $2.95 in the prior year. This year, the market expects an improvement in earnings to $3.98. Net income decreased by 76.2% from the same quarter one year ago, underperforming the S&P 500 and the insurance industry. Gross profit margin is extremely low, at 4.2%, and net profit margin of 2.7% trails the industry average. We've downgraded Coach ( COH), which engages in the design and marketing of accessories and gifts for men and women, from hold to sell, based on the generally disappointing historical performance in its stock. Shares are down by 47.85%, underperforming the the S&P 500. The decline may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
Net income has decreased 5.8% when compared with the same quarter one year ago, greatly exceeding the S&P 500 but underperforming the textiles, apparel and luxury goods industry. The gross profit margin is currently very high, coming in at 74.2%, but it has managed to decrease from the same period last year. Net profit margin of 19.40% compares favorably to the industry average. Coach has improved earnings per share by 7.3% in the most recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive EPS growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, Coach increased its bottom line by earning $2.18 vs. $1.69 in the prior year. This year, the market expects further improvement to $2.23. Revenue growth of 11.2% since the same quarter a year ago trails the industry average of 31.2%. We've downgraded Foster Wheeler ( FWLT), which provides construction and engineering services to the oil and gas and other sectors worldwide, from buy to hold. Strengths include its impressive record of earnings per share growth, compelling growth in net income and robust revenue growth. Weaknesses include weak operating cash flow, a generally disappointing performance in the stock itself and poor profit margins. Foster Wheeler reported significant earnings per share improvement 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 year, and we feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, the company bottom line by earning $2.73 vs. $1.70 in the prior year. This year, the market expects an improvement in earnings to $3.72. Net income growth of 123.7% from the same quarter one year ago has significantly exceeded that of the S&P 500 and the construction and engineering industry.
Net operating cash flow has decreased to $130.42 million, or 17.62% when compared with the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. Shares are down by 68.64% on the year, which is also worse that the performance of the S&P 500. 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. But due to other concerns, we feel the stock is still not a good buy right now. We've downgraded Time Warner Cable ( TWC), which provides video, data and voice service to residential and commercial customers in the U.S., from hold to sell, driven by its generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. The company reported flat earnings per share in the most recent quarter. For the next year, the market is expecting a contraction of 0.9% in earnings to $1.13. Time Warner Cable's gross profit margin is rather high at 53.10%, but it has managed to decrease from the same period last year. Net profit margin of 6.40% trails the industry average. The company's debt-to-equity ratio of 0.66 is somewhat low overall, but it is high when compared with the industry average, implying that the management of the debt levels should be evaluated further. The company's quick ratio of 1.79 is high and demonstrates strong liquidity. The company's return on equity is below that of both the industry average and the S&P 500.
Shares have plunged by 40.83% compared to where it was selling one year ago, apparently dragged down by the decline we have seen in the S&P 500, along with other factors. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, Time Warner Cable is still more expensive than most of the other companies in its industry. We've downgraded Whirlpool ( WHR), which engages in the manufacture and marketing of home appliances worldwide, from buy to hold. Strengths include its revenue growth, good cash flow from operations and notable return on equity. Weaknesses include unimpressive growth in net income, poor profit margins and generally poor debt management. Whirlpool's revenue growth of 4.6% since the same quarter one year prior trails the industry average of 15%. 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. Net operating cash flow has significantly increased by 143.79% to $373.00 million when compared with the same quarter last year, vastly surpassing the industry average cash flow growth rate of -716.66%. The gross profit margin is rather low at 17.80%, having decreased from the same quarter the previous year. The net profit margin of 2.30% trails that of the industry average.The net income has significantly decreased by 27.3% when compared with the same quarter one year ago, falling from $161.00 million to $117.00 million, significantly underperforming the household durables industry average but outperforming the S&P 500. Other ratings changes include Student Loan ( STU) and Foundation Coal ( FCL), both downgraded from hold to sell. All ratings changes generated on Oct. 24 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.
|ACGL||Arch Capital Group||HOLD||Downgrade||BUY|
|ACS||Affiliated Computer Services||HOLD||Downgrade||BUY|
|ANL||American Land Lease||SELL||Downgrade||HOLD|
|CHKP||Check Point Software||HOLD||Downgrade||BUY|
|CLNE||Clean Energy Fuels||SELL||Downgrade||HOLD|
|CP||Canadian Pacific Railway||HOLD||Downgrade||BUY|
|CSKI||China Sky One||HOLD||Downgrade||BUY|
|EFII||Electronics for Imaging||SELL||Downgrade||HOLD|
|HWCC||Houston Wire & Cable||SELL||Downgrade||HOLD|
|JOSB||Jos. A Bank Clotheirs||HOLD||Downgrade||BUY|
|KV.A||K V Pharmaceutical||HOLD||Downgrade||BUY|
|KV.B||K V Pharmaceutical||HOLD||Downgrade||BUY|
|NOV||National Oilwell Varco||HOLD||Downgrade||BUY|
|NUS||Nu Skin Enterprises||HOLD||Downgrade||BUY|
|PXD||Pioneer Natural Resources||HOLD||Downgrade||BUY|
|RBI||Sport Supply Group||HOLD||Downgrade||BUY|
|TWC||Time Warner Cable||SELL||Downgrade||HOLD|
|Source: TheStreet.com Ratings|