TSC Ratings' Updates: Morgan Stanley

The following ratings changes were generated on Wednesday, Jan. 21.

We've upgraded pharmaceutical services company AmerisourceBergen ( ABC) from hold to buy, driven by its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins.

Revenue increased by 5.3% since the year-ago quarter, and EPS improved by 17.7%. The company has demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income grew by 31.2% compared with the year-ago quarter, from $87.6 million to $114.9 million. Net operating cash flow increased by 303% to $514.1 million. The company has a low debit-to-equity ratio of 0.4, which is below the industry average, implying successful management of debt levels, but its 0.5 quick ratio displays a potential problem in covering short-term cash needs.

We've upgraded CNX Gas ( CXG), which engages in the exploration, development, and production of natural gas, from hold to buy, driven by its robust revenue growth, compelling growth in net income, good cash flow from operations, expanding profit margins and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Revenue leaped by 99% since the year-ago quarter, and net income grew by 115.4% to $67.4 million. Net operating cash flow increased by 70.5% to $120.1 million. CNX's gross profit margin of 69.1% is rather high, though it has decreased from the same period last year. Its net profit margin of 31.1% significantly outperformed the industry average. CNX's debt-to-equity ratio of 0.1 is low and below the industry average, implying very successful management of debt levels, but its 0.4 quick ratio is very weak and demonstrates a lack of ability to pay short-term obligations.

We've downgraded Morgan Stanley ( MS) from hold to sell, driven by its disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

The company's current return on equity has slightly decreased from the same quarter one year prior, implying a minor weakness in the organization. Morgan Stanley's 23.9% gross profit margin is rather low, having decreased significantly from the same period last year. Revenue plummeted by 64.7% since the year-ago quarter, but EPS improved by 38%. This company has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year

Shares are down 71% on the year, underperforming the S&P 500. The stock's decline 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 Perdigao ( PDA), which engages in the production and sale of poultry, pork, beef cuts, milk, dairy products, and processed food products in Brazil and internationally, from buy to sell, driven by its generally weak debt management, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

Perdigao's debt-to-equity ratio of 1.3 is relatively high when compared with the industry average, suggesting a need for better debt level management. Its 10.7% gross profit margin is extremely low, having decreased significantly from the same period last year, and its net profit margin of 7.50% trails the industry average. Return on equity has greatly decreased since the same quarter one year prior, a signal of major weakness within the corporation.

EPS have improved by 15.9% compared with the same quarter last year. The company has demonstrated a pattern of positive earnings per share growth over the past year, and we anticipate underperformance relative to this pattern in the coming year. Shares are down 39.5% on the year, dragged down in part by the decline in the S&P 500. 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 downgraded Regions Financial ( RF), which operates as the holding company for Regions Bank, from hold to sell, driven by its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Net income decreased from $70.6 million in the year-ago quarter to -$6,218.3 million. Return on equity also greatly decreased, a signal of major weakness. Regions' gross profit margin of 20.8% is rather low, having decreased significantly from the same period last year, and its net profit margin of -272.30% is significantly below the industry average.

Shares are down 76% over the year, underperforming the S&P 500, and EPS are down 9,070% compared with the year-earlier quarter. 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.

Other ratings changes include Stanley ( SXE), upgraded from hold to buy, and Apollo Gold ( AGT), upgraded from sell to hold.

All ratings changes generated on Jan. 21 are listed below.

 
Ticker
Company
Current
Change
Previous
ABC AmerisourceBergen
BUY
Upgrade
HOLD
AGT Apollo Gold
HOLD
Upgrade
SELL
ARII American Railcar
HOLD
Upgrade
SELL
ASTE Astec Industries
HOLD
Downgrade
BUY
CNBKA Century Bancorp
BUY
Upgrade
HOLD
CXG CNX Gas
BUY
Upgrade
HOLD
HAUP Hauppage Digital
SELL
Downgrade
HOLD
HBHC Hancock Holding
HOLD
Downgrade
BUY
HGIC Harleysville Group
HOLD
Downgrade
BUY
HUBG HUB Group
HOLD
Downgrade
BUY
KAMN Kaman
HOLD
Downgrade
BUY
MIGL Miscor Group
SELL
Initiated
MS Morgan Stanley
SELL
Downgrade
HOLD
NEM Newmont Mining
HOLD
Upgrade
SELL
NPBC National Penn Bancshares
HOLD
Downgrade
BUY
OKRG Oakridge Holdings
SELL
Initiated
PDA Perdigao
SELL
Downgrade
BUY
RF Regions Financial
SELL
Downgrade
HOLD
SOEN Solar Enertch
SELL
Initiated
SXE Stanley
BUY
Upgrade
HOLD
TRST Trustco Bank
HOLD
Downgrade
BUY
WNR Western Refining
HOLD
Upgrade
SELL

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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