The following ratings changes were generated on Wednesday, Dec. 24. We've downgraded Ametek ( AME), which manufactures and markets electronic instruments and electromechanical devices, from buy to hold. Strengths include its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, we also find weaknesses including a decline in the stock price during the past year and poor profit margins. Return on equity has improved slightly since the same quarter a year ago, outperforming the S&P 500 but underperforming the electrical equipment industry. Ametek's gross profit margin of 33.1% is low, though it has increased since the same period last year. Its net profit margin of 11% trails the industry average. Revenue rose by 22.4% since the same quarter a year ago, exceeding the industry average growth of 10.1% and helping boost earnings per share, which improved 24.5% 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, which we feel should continue, suggesting improving business performance. During the past fiscal year, it earned $2.12 vs. $1.71 in the prior year, and this year, the market expects further improvement to $2.55. Shares are down 38.8% on the year. Naturally, the overall market trend is bound to be 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. But due to other concerns, we feel the stock is still not a good buy right now.
We've upgraded Home Bancshares ( HOMB), which provides commercial and retail banking and related financial services, from hold to buy, driven by its impressive record of earnings per share growth, compelling growth in net income, revenue growth, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value. EPS improved by 15.2% in the most recent quarter compared with the same quarter a year ago, and during the past fiscal year, Home Bancshares increased its bottom line by earning $1.08 vs. 70 cents in the prior year. This year, the market expects an improvement in earnings to $1.22. Net income growth of 25.6% outperformed the S&P 500 and the commercial banks industry, though revenue increased by only 2.8%, compared with the industry average of 8.5%. A gross profit margin of 64.3% is high, having increased significantly from the same period last year. The 15% net profit margin is above the industry average. Net operating cash flow has increased to $8.50 million, or 36.13% when compared with the same quarter last year, but Home Bancshares is still growing at a significantly lower rate than the industry average of 169.1%. We've downgraded energy and energy services provider OGE Energy ( OGE) from buy to hold. Strengths include its increase in net income, robust revenue growth and attractive valuation levels. However, we also find weaknesses including poor profit margins and generally poor debt management.
Net income growth of 10% since the same quarter a year ago significantly outperformed the S&P 500 and the multi-utilities industry, though revenue growth of 20.% significantly trails the 42.8% industry average. EPS improved by 9.5% 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, but we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, OGE increased its bottom line by earning $2.64 vs. $2.45 in the prior year. For the next year, the market is expecting a contraction of 3.6% in earnings to $2.55. Even though the current debt-to-equity ratio is 1.44, it is still below the industry average, suggesting that this level of debt is acceptable within the multi-utilities industry. The company's quick ratio of 0.5 is very low and demonstrates very weak liquidity. OGE's gross profit margin for OGE is rather low at 22.70%, having decreased from the same quarter the previous year, but the net profit margin of 11.1% is above the industry average. We've upgraded TriCo Bancshares ( TCBK), which provides commercial banking services primarily for retail customers, from hold to buy, driven by its expanding profit margins, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. TriCo's 73.2% gross profit margin is very high, and its 17% net profit margin outperforms the industry average. Net operating cash flow has significantly increased by 57.83% to $12.32 million when compared with the same quarter last year, though TriCo is still growing at a significantly lower rate than the industry average of 169.13%. Revenue dropped slighty by 6.4%, underperforming the industry average of 8.5%. Net income has decreased by 8.2%, dropping from $6.79 million to $6.24 million.
Not only is the stock trading higher than it was a year ago, its rise has outperformed that of the S&P 500 over the same period, despite its weak earnings results. The stock's price rise over the last year has driven it to a level that is somewhat expensive compared with the rest of its industry, but we feel that other strengths this company displays justify these higher price levels. We've upgraded Thoratec ( THOR), which manufactures circulatory support products for use by patients with heart failure, from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value. Revenue rose by 44.2% since the same quarter last year, outperforming the industry average of 15.4% growth and helping boost EPS. The current debt-to-equity ratio, 0.3, is low and is below the industry average, implying successful management of debt levels. The company also maintains a quick ratio of 5.99, which clearly demonstrates the ability to cover short-term cash needs. Net income increased by 610% since the same quarter a year ago, significantly outperforming the S&P 500 and the health care equipment and supplies industry. Net operating cash flow has significantly increased by 111% to $11.9 million when compared with the same quarter last year, vastly surpassing the industry average cash flow growth rate of 21.35%. The company's gross profit margin of 64.8% is rather high, having increased from the same quarter the previous year, though its net profit margin of 8.9% significantly trails the industry average.
Other ratings changes include Global-Tech ( GAI), upgraded from sell to hold, and Cover-All Technologies ( COVR), downgraded from hold to sell. All ratings changes generated on Dec. 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.