The following ratings changes were generated on Wednesday, Feb. 18. We've upgraded Barrick Gold ( ABX), which engages in the acquisition, exploration and development of gold properties, from hold to buy, driven by revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Revenue rose by 11.5% since the same quarter last year, trailing the industry average of 53.1% growth. The growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. Return on equity also grew from the year-ago quarter, a sign of strength within the company. Barrick's gross profit margin of 41.4% is strong, though it has decreased from the same period last year. The company's net profit margin of 13.5% trails the industry average. Its debt-to-equity ratio is very low at 0.3, and its 1.4 quick ratio illustrates its ability to avoid short-term cash problems. Net operating cash flow has decreased by 12.1% to $508 million compared with the year-ago quarter, though it did not decrease as much as the industry average. We've upgraded American States Water ( AWR), which engages in water and electric service utility operations, from hold to buy, driven by its revenue growth, good cash flow from operations, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had generally poor debt management on most measures that we evaluated.
Revenue rose by 12.4% since the year-ago quarter, though EPS declined by 40.9%. The company has reported somewhat volatile earnings recently, and we feel it is likely to report a decline in earnings in the coming year. Net operating cash flow increased by 32.1% to $15.7 million, outperforming the industry average cash flow growth rate. American States Water's 43.8% gross profit margin is strong, though it has decreased from the year-ago period, and its net profit margin of 5.3% trails the industry average. Shares have risen over the past year, clearly outperforming the S&P 500 over the same period, despite the company's weak earnings results. The stock's rise over the last year has already helped drive it to a level that's relatively expensive compared with the rest of its industry, but we feel its other strengths justify the higher price levels. We've upgraded multiline health care company Centene ( CNC) from hold to buy, driven by its robust revenue growth, solid stock price performance, attractive valuation levels, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins. Revenue rose by 16.1% since the year-ago quarter, outperforming the industry average and boosting EPS. Net income increased by 1,354.4%, from $1.5 million to $21.4 million, outperforming the S&P 500 and the health care providers and services industry. Net operating cash flow decrease by 154.7% to $95.5 million. Shares are trading higher than they were a year ago and have clearly outperformed the S&P 500 over that time period, the company's strong earnings growth being key. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
We've upgraded health information services provider HLTH ( HLTH) from hold to buy, driven by its robust revenue growth, compelling growth in net income, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Revenue rose by 16.6% since the same quarter last year, though EPS declined. Net income increased by 478.6%, from $16.6 million to $95.9 million, outperforming the S&P 500 and the health care technology industry. HLTH's 64.8% gross profit margin is rather high, though it has decreased since the same period last year. Its net profit margin of 95.5% significantly outperformed the industry. Despite having a low debt-to-equity level of 0.6, it is higher than the industry average. The 7.7 quick ratio is very high, demonstrating very strong liquidity. Shares are trading higher than they were a year ago, clearly outperforming the S&P 500 over the same period, despite the company's weak earnings results. It goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year We've downgraded automotive retailer Penske Automotive Group ( PAG) from hold to sell, driven by its deteriorating net income, generally weak debt management, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself. Net income decreased from $29.4 million in the year-ago quarter to -$509.9 million, underperforming significantly the S&P 500 and the specialty retail industry. Return on equity also greatly decreased, a signal of major weakness. Although Penske's debt-to-equity ratio or 3.3 is very high, it is currently less than the industry average. The company maintains a quick ratio of 0.2, which clearly demonstrates its inability to cover short-term cash needs. Penske's 16.1% gross profit margin is rather low, though it has increased since the year-ago period. The -23.6% net profit margin significantly underperformed the industry average. Shares have tumbled by 66.8% over the year, underperforming the S&P 500, and EPS are down 2,013.8% compared with the year-earlier 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. Other ratings changes included Stone Energy ( SGY), downgraded from hold to sell, and Synovis Life ( SYNO), upgraded from hold to buy. All ratings changes generated on Feb. 18 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.