The following ratings changes were generated on Monday, Dec. 29.We've downgraded Research In Motion ( RIMM), which engages in the design, manufacture and marketing of wireless solutions for the mobile communications market worldwide, from buy to hold. The primary factors that have impacted our rating are mixed. The company's strengths can be seen in multiple areas, such as its robust 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 stock has had a generally disappointing performance in the past year. Research In Motion's very impressive revenue growth greatly exceeded the industry average of 17.6%. Since the same quarter one year prior, revenues leaped by 66.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. RIMM's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, RIMM has a quick ratio of 1.63, which demonstrates the ability of the company to cover short-term liquidity needs. 45.60% is the gross profit margin for Research In Motion which we consider to be strong. Regardless of Research In Motion's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 14.20% trails the industry average. Research In Motion's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 65.66%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year 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.
We've downgraded CSX Corp. ( CSX), which provides rail-based transportation services in North America, from buy to hold. The primary factors that have impacted our rating are mixed. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and poor profit margins.Despite its growing revenue, the company underperformed as compared with the industry average of 21.6%. Since the same quarter one year prior, revenues rose by 18.4%. Growth in the company's revenue appears to have helped boost the earnings per share. The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Road & Rail industry and the overall market, CSX's return on equity exceeds that of both the industry average and the S&P 500. Net operating cash flow has increased to $848.00 million or 14.13% when compared to the same quarter last year. Despite an increase in cash flow, CSX's cash flow growth rate is still lower than the industry average growth rate of 62.89%. The gross profit margin for CSX is currently lower than what is desirable, coming in at 32.40%. Regardless of CSX's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.90% trails the industry average. The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Road & Rail industry average, but is greater than that of the S&P 500. The net income has decreased by 6.1% when compared to the same quarter one year ago, dropping from $407.00 million to $382.00 million.
We've upgraded Tower Group ( TWGP), which through its subsidiaries, provides a range of specialized property and casualty insurance products and services to small to mid-sized businesses and individuals in the northeast United States, from hold to buy.The revenue growth came in higher than the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 16.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. Tower has improved earnings per share by 16.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TOWER GROUP INC increased its bottom line by earning $1.92 versus $1.81 in the prior year. This year, the market expects an improvement in earnings ($2.87 versus $1.92). The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Insurance industry. The net income increased by 16.2% when compared to the same quarter one year prior, going from $14.38 million to $16.72 million. Net operating cash flow has increased to $23.13 million or 26.40% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.27%. Despite currently having a low debt-to-equity ratio of 0.32, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Other ratings changes include: