TSC Ratings' Updates: Microsoft

The following ratings changes were generated on Tuesday, Oct. 28.

We've downgraded mining equipment company Bucyrus International ( BUCY) from buy to hold. Strengths include its robust revenue growth, impressive record of EPS growth and compelling growth in net income. Weaknesses include a generally disappointing performance in the stock itself and poor profit margins.

Revenue rose by 29.1% over the same quarter a year ago, surpassing the industry average of 10.4% growth and boosting EPS, which increased significantly. In fact, the company's EPS have grown over the past two years, and we feel this trend should continue. During the past fiscal year, Bucyrus increased its bottom line by earning $1.89 vs. $1.12 in the prior year, and this year, the market expects further improvement to $3.17. The current debt-to-equity ratio, 0.56, is low and is below the industry average, implying successful management of debt levels. The quick ratio, however, of 0.87 is somewhat weak and could be cause for future problems.

Bucyrus' gross profit margin of 29.6% is lower than desirable, but it has increased over the same period last year. Net profit margin of 9.9% compares favorably to the industry average. Shares are down 55.6% on the year, underperforming the S&P 500, but that doesn't necessarily tag the stock as cheap and attractive. The reality is that, based on its current price in relation to its earnings, Bucyrus is still more expensive than most of the other companies in its industry.

We've downgraded Danaher ( DHR), which designs, manufactures and markets professional, medical, industrial and consumer products, from buy to hold. Strengths include its robust revenue growth, expanding profit margins and good cash flow from operations. Weaknesses include a decline in the stock price during the past year, deteriorating net income and disappointing return on equity.

Revenue is up 17.5% since the same quarter a year ago, outpacing the industry average of 10.4% growth and boosting EPS, which are up 7.8%. In fact, the company has demonstrated positive EPS growth over the past two years, a trend we feel should continue. During the past fiscal year, Danaher earned $3.71, vs. $3.44 in the prior year, and this year the market expects further improvement to $4.33. The company's debt-to-equity ratio is very low at 0.27 and is currently below that of the industry average, implying very successful management of debt levels. Its quick ratio of 0.79 is somewhat weak and could be cause for future problems. Net income decreased 23.1% when compared with the same quarter last year, which outperformed the S&P 500 but underperformed the machinery industry.

Shares are down 36.05% on the year, but this decline was actually not as bad as the broader market's plunge during that same time frame. One factor that may have helped cushion the fall somewhat was EPS improvement. Nonetheless, based on its current price in relation to itsearnings, Danaher is still more expensive than most of the other companies in its industry.

We've downgraded General Dynamics ( GD) from buy to hold. Strengths include its revenue growth, impressive record of EPS growth and compelling growth in net income. Weaknesses include a decline in the stock price during the past year and weak operating cash flow.

Revenue slightly increased by 4.5% since the same quarter last year, outpacing the industry average of 2.7% and boosting EPS, which improved by 18.6%. We expect the company's two-year trend of positive EPS growth to continue, demonstrating an improvement in business performance. During the past fiscal year, General Dynamics increased its bottom line by earning $5.10 vs. $4.19 in the prior year, and this year, the market expects an improvement $6.17. The debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying very successful management of debt levels, but the quick ratio, which is currently 0.67, displays a potential problem in covering short-term cash needs.

Net operating cash flow has declined marginally to $863.00 million or 8.09% when compared with the same quarter last year, but GD is still exceeded its industry average cash flow growth rate of -36.65%. Shares have plunged 42.71% compared 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 considered 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 Microsoft ( MSFT) 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. However, as a counter to these strengths, we find that the company's cash flow from its operations has been weak overall.

Microsoft's revenue growth of 9.4% over the same quarter a year ago has slightly outpaced the industry average of 8.8% and appears to have boosted EPS. The 0.06 debt-to-equity ratio is very low and currently below the industry average, implying very successful management of debt levels. The company also maintains an adequate quick ratio of 1.24, which illustrates the ability to avoid short-term cash problems.

Net operating cash flow has decreased to $3,370.00 million, or 42.66% when compared with the same quarter last year. Although shares are off by a sharp 39.54% compared with one year ago, its decline was actually not as bad as the broader market plunge during that same time frame. One factor that may have helped cushion the fall somewhat was the EPS improvement.Naturally, the overall market trend is bound to be a significant factor, and the stock's sharp decline last year could be considered 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 Windstream ( WIN), which provides various telecommunicationsservices in rural communities in the U.S., from hold to sell, driven by its 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 10.69 and currently higher than the industry average, implying very poor management of debt levels within the company. Windstream also has a quick ratio of 0.60, demonstrating an inability to cover short-term liquidity needs. Net operating cash flow has declined marginally to $291.80 million, or 2.14% when compared with the samequarter last year, but it still exceeds the industry average cash flow growth rate of -22.26%. Net income decreased 12% over the same quarter last year, outperforming the S&P 500 but underperforming the diversified telecommunication services industry. Revenue dropped by 3.2%, underperforming the industry average of 8.3%, but EPS increased nonetheless.

Shares are down 47.24% on the year. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline makes 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 Continental ( CAL) and Chesapeake ( CHK), both downgraded from hold to sell.

All ratings changes generated on Oct. 28 are listed below.
ACV Alberto-Culver
HOLD
Downgrade
BUY
AFSI Amtrust
SELL
Downgrade
HOLD
ALTR Altera
HOLD
Downgrade
BUY
ANW Aegean Marine
SELL
Downgrade
HOLD
ASR Grupo Aeroportuario
HOLD
Downgrade
BUY
ATX A.T. Croxx
HOLD
Downgrade
BUY
AVB AvalonBay
HOLD
Downgrade
BUY
AXE Anixter
HOLD
Downgrade
BUY
BAS Basic Energy Services
SELL
Downgrade
BUY
BTM Brasil Telecom
HOLD
Downgrade
BUY
BUCY Bucyrus International
HOLD
Downgrade
BUY
CAL Continental Airlines
SELL
Downgrade
HOLD
CBON Community Bancorp
SELL
Downgrade
HOLD
CHBT China-Biotics
HOLD
Initiated
CHDN Churchill Downs
HOLD
Downgrade
BUY
CHK Chesapeake Energy
SELL
Downgrade
HOLD
CHYR Chyron
HOLD
Downgrade
BUY
CLF Cliffs Natural Resources
HOLD
Downgrade
BUY
CMI Cummins
HOLD
Downgrade
BUY
CNBC Center Bancorp
HOLD
Upgrade
SELL
COP ConocoPhillips
HOLD
Downgrade
BUY
CPA Copa Holdings
SELL
Downgrade
HOLD
CPHL Castlepoint
SELL
Downgrade
HOLD
DHR Danaher
HOLD
Downgrade
BUY
DSGX Descartes Systems
HOLD
Downgrade
BUY
EME Emcor Group
HOLD
Downgrade
BUY
EMR Emerson Electric
HOLD
Downgrade
BUY
EPIQ Epiq Systems
HOLD
Downgrade
BUY
ESE Esco Technologies
HOLD
Downgrade
BUY
EXC Exelon
HOLD
Downgrade
BUY
FFCH First Financial
HOLD
Downgrade
BUY
FMC FMC
HOLD
Downgrade
BUY
GD General Dynamics
HOLD
Downgrade
BUY
GTI Graftech International
HOLD
Downgrade
BUY
HAIN Hain Celestial
HOLD
Downgrade
BUY
HW Headwaters
SELL
Downgrade
HOLD
IIT Indosat
HOLD
Downgrade
BUY
INFA Informatica
HOLD
Downgrade
BUY
INSW InsWeb
SELL
Downgrade
HOLD
INWK InnerWorkings
SELL
Downgrade
HOLD
LB LaBarge
HOLD
Downgrade
BUY
MCCC Mediacom Communications
SELL
Downgrade
HOLD
MHS Medco Health
HOLD
Downgrade
BUY
MLM Martin Marietta
HOLD
Downgrade
BUY
MSBF MSB Financial
SELL
Downgrade
HOLD
MSFT Microsoft
HOLD
Downgrade
BUY
MT Arcelor Mittal
HOLD
Downgrade
BUY
NAVG Navigators Group
HOLD
Downgrade
BUY
NOVL Novell
SELL
Downgrade
HOLD
NR Newpark Resources
HOLD
Downgrade
BUY
NWPX Northwest Pipe
HOLD
Downgrade
BUY
REPR Repro- Med Systems
HOLD
Upgrade
SELL
RLI RLI
HOLD
Downgrade
BUY
RRST RRSat Global
SELL
Downgrade
HOLD
SAPE Sapient
HOLD
Downgrade
BUY
SCUR Secure Computing
HOLD
Upgrade
SELL
SID CSN
HOLD
Downgrade
BUY
SII Smith International
HOLD
Downgrade
BUY
SMTS Somanetics
HOLD
Downgrade
BUY
SPG Simon Property Group
HOLD
Downgrade
BUY
SXCI SXC Health Solutions
SELL
Downgrade
HOLD
SYMM Symmetricom
SELL
Downgrade
HOLD
SYNT Syntel
HOLD
Downgrade
BUY
TG Tredegar
HOLD
Downgrade
BUY
TGC Tengasco
HOLD
Downgrade
BUY
TIN Temple-Inland
SELL
Downgrade
HOLD
TLK Telekomunikasi Indonesia
HOLD
Downgrade
BUY
TRMK Trustmark
HOLD
Downgrade
BUY
TSM Taiwan Semiconductor
HOLD
Downgrade
BUY
TZOO Travelzoo
SELL
Downgrade
HOLD
UBA Urstadt Biddle
HOLD
Downgrade
BUY
UHT Universal Health Realty
HOLD
Downgrade
BUY
UNF Unifirst
HOLD
Downgrade
BUY
UNTY Unity Bancorp
SELL
Downgrade
HOLD
UTX United Technologies
HOLD
Downgrade
BUY
UVE Universal Insurance
HOLD
Downgrade
BUY
WAL Western Alliance Bancorp
SELL
Downgrade
HOLD
WCBO West Cost Bancorp
SELL
Downgrade
HOLD
WIN Windstream
SELL
Downgrade
HOLD
WSFS WSFS Financial
HOLD
Downgrade
BUY
XTO XTO Energy
HOLD
Downgrade
BUY
YGE Yingli Green Energy
SELL
Initiated
Source: TheStreet.com Ratings

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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