TSC Ratings' Updates: AnnTaylor

The following ratings changes were generated on Tuesday, Dec. 30.

We've downgraded AnnTaylor Stores ( ANN), which operates as a specialty retailer of women's apparel, shoes, and accessories in the United States, from hold to sell. This downgrade is driven by the company's weaknesses in multiple areas, such as its generally disappointing historical performance in the stock itself, feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and weak operating cash flow.

Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 80.21%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 136.36% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

The company 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, AnnTaylor Stores reported lower earnings of $1.51 versus $1.97 in the prior year. For the next year, the market is expecting a contraction of 64.9% in earnings ($0.53 versus $1.51).

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 133.0% when compared to the same quarter one year ago, falling from $40.76 million to -$13.45 million.

Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Specialty Retail industry and the overall market, AnnTaylor Stores' return on equity is significantly below that of the industry average and is below that of the S&P 500.

Net operating cash flow has significantly decreased to -$1.27 million or 101.99% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

We've initiated coverage of CIBT Education Group ( MBA), which engages in the development and operation of academic, technical and career training schools in China, with a sell rating. This initial rating driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity.

The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Diversified Consumer Services industry and the overall market, CIBT's return on equity significantly trails that of both the industry average and the S&P 500.

The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Diversified Consumer Services industry average, but is greater than that of the S&P 500. The net income increased by 96.8% when compared to the same quarter one year prior, rising from -$0.90 million to -$0.03 million.

CIBT reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, CIBT EDUCATION GROUP INC swung to a loss, reporting -$0.02 versus $0.01 in the prior year.

MBA'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 85.47%, 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.

The gross profit margin for CIBT is currently very high, coming in at 70.40%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.20% is in-line with the industry average.

We've downgraded Terra Industries ( TRA), which engages in the production and marketing of nitrogen and methanol products for agricultural and industrial markets worldwide. 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 also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and poor profit margins.

Terra's revenue growth has slightly outpaced the industry average of 30.8%. Since the same quarter one year prior, revenues rose by 36.4%. Growth in the company's revenue appears to have helped boost the earnings per share.

The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.40, which illustrates the ability to avoid short-term cash problems.

Terra'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 68.94%, 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. Naturally, the overall market trend is bound to be a significant factor. However, 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.

Net operating cash flow has significantly decreased to $94.50 million or 52.48% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

We've upgraded Ultralife ( ULBI), which designs, manufactures, installs, and maintains power and communications systems worldwide, from hold to buy. This upgrade is driven by strengths in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and attractive valuation levels. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Ultralife's very impressive revenue growth greatly exceeded the industry average of 9.8%. Since the same quarter one year prior, revenues leaped by 104.2%. Growth in the company's revenue appears to have helped boost the earnings per share.

Ultralife's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.09, which illustrates the ability to avoid short-term cash problems.

Ultralife reported significant earnings per share improvement 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, Ultralife turned its bottom line around by earning $0.34 versus -$1.82 in the prior year. This year, the market expects an improvement in earnings ($1.03 versus $0.34).

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electrical Equipment industry. The net income increased by 3738.3% when compared to the same quarter one year prior, rising from -$0.13 million to $4.66 million.

We've downgraded American States Water ( AWR), which engages in water and electric service utility operations for residential and commercial customers in the United States, 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, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year, generally poor debt management and disappointing return on equity.

The revenue growth greatly exceeded the industry average of 22.9%. Since the same quarter one year prior, revenues rose by 12.4%. 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 increased to $15.69 million or 32.09% when compared to the same quarter last year. In addition, American States Water has also vastly surpassed the industry average cash flow growth rate of -57.20%.

43.80% is the gross profit margin for American States Water which we consider to be strong.Regardless of American States Water'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 5.30% trails the industry average.

American States Water's share price is down 17.17% over the past year. We believe this reflects several factors -- the market's overall decline (which was actually deeper), the sharp decline in the company's earnings per share, and (c) other weaknesses. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.

The debt-to-equity ratio of 1.07 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.40, which clearly demonstrates the inability to cover short-term cash needs.

All ratings changes generated on Dec. 30 are listed below.

Ticker
Company
Current
Change
Previous
ANN
ANNTAYLOR STORES CORP.
SELL
Downgrade
HOLD
ATC
CYCLE CTRY ACCESSORIES CORP
SELL
Downgrade
HOLD
AWR
AMERICAN STATES WATER CO.
HOLD
Downgrade
BUY
FRM
FURMANITE CORP.
HOLD
Downgrade
BUY
HOLI
HLS SYSTEMS INTERNATIONL LTD.
SELL
Initiated
ICFI
ICF INTERNATIONAL INC.
BUY
Upgrade
HOLD
IHT
INNSUITES HOSPITALITY TR.
SELL
Downgrade
HOLD
MBA
CIBT EDUCATION GROUP INC.
SELL
Initiated
SKH
SKILLED HEALTHCARE GROUP INC.
SELL
Downgrade
HOLD
SOCB
SOUTHCOAST FINANCIAL CORP.
SELL
Downgrade
HOLD
STV
CHINA DIGITALTV HLDG CO.
SELL
Initiated
TRA
TERRA INDUSTRIES INC.
HOLD
Downgrade
BUY
ULBI
ULTRALIFE CORP.
BUY
Upgrade
HOLD
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.

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