TSC Ratings' Updates: Hansen Natural

The following ratings changes were generated on Monday, March 2.

We've upgraded Calgon Carbon ( CCC), which provides services, products, and solutions for purifying water and air, from hold to buy. This rating is driven by the company's revenue growth, largely solid financial position with reasonable debt levels by most measures, compelling growth in net income, notable return on equity 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 increased by 8% since the same quarter last year, and earnings per share rose significantly. The company has demonstrated a pattern of positive EPS growth over the past two years, though we anticipate underperformance relative to the pattern in the coming year. Calgon's debt-to-equity ratio is very low at 0.05 and is currently below the industry average, implying very successful management of debt levels, and its quick ratio of 1.2 illustrates its ability to avoid short-term cash problems. Net income increased by 105.4% since the year-ago quarter, from $3.8 million to $7.9 million, significantly outperforming the S&P 500 and the chemicals industry. Return on equity also increased.

We've downgraded beverage company Hansen Natural ( HANS) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, we also find weaknesses including a decline in the stock price during the past year, deteriorating net income and premium valuation.

Revenue increased by 3.1% since the same quarter a year ago, though EPS declined. Hansen had a quick ratio of 2.3, demonstrating its ability to cover short-term liquidity needs. Its 54.4% gross profit margin is rather high, having increased from the year-ago quarter, while its net profit margin or -9.2% is in line with the industry average. Net income fell from $45.1 million in the year-ago quarter to -$23.5 million in the most recent quarter, significantly underperforming the S&P 500 and the beverages industry.

Shares are down 24.2% on the year, in part reflecting the market's overall decline. We do not see anything in this company's numbers that would change the one-year trend, though naturally, a bull or bear market could sway the movement of this stock.

We've downgraded Olin ( OLN), which manufactures and sells chlor alkali products, from hold to sell, driven by its generally disappointing historical performance in the stock itself and poor profit margins.

Olin's gross profit margin of 26.8% is lower than desirable, though it has managed to increase since the year-ago period. Its 10.9% net profit margin trails the industry average. EPS improved significantly in the most recent quarter compared with the same quarter last year, though we anticipate underperformance in the coming year relative to the company's two-year pattern of positive EPS growth. ROE increased since the year-ago quarter, a clear sign of strength within the company.

Shares plunged by 48.9% over the year, in part dragged down 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 Scientific Games ( SGMS), which supplies technology-based products, systems and services to gaming markets worldwide, from hold to sell. This rating is driven by the company's 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 fell from $16.4 million in the year-ago quarter to -$65.8 million in the most recent quarter, significantly underperforming the S&P 500 and the hotels, restaurants and leisure industry. ROE also decreased, a clear sign of weakness. Scientific Games' 2.2. debt-to-equity ratio is very high and above the industry average, implying very poor management of debt levels. Its 33.2% gross profit margin is lower than desirable, having decreased from the year-ago quarter, and its net profit margin of -24.9% is significantly below the industry average.

Shares have fallen 48.4% over the year, in part reflecting the market's overall decline, but don't assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, the stock is still more expensive than most of the other companies in its industry.

We've downgraded Unitrin ( UTR), which engages in the property and casualty insurance, life and health insurance and automobile finance businesses, from hold to sell. This rating is driven by the company's deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Net income decreased from $8.5 million in the year-ago quarter to -10.6 million in the most recent quarter, significantly underperforming the S&P 500 and the insurance company. ROE also greatly decreased, a signal of major weakness. Net operating cash flow decreased significantly to -$45.2 million, and EPS declined 600%. The company has reported a trend of declining EPS over the past two year, but the consensus estimate suggests that it should reverse in the coming year.

Shared tumbled 72.1% over the year, underperforming the S&P 500, but that 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.

Other ratings changes included Hewlett-Packard ( HPQ) and Alliant Energy ( LNT), both downgraded from buy to hold.

All ratings changes generated on March 2 are listed below.

Ticker
Company
Current
Change
Previous
AMCN
AirMedia
SELL
Initiated
APAGF
Apco Argentina
HOLD
Downgrade
BUY
ARG
Airgas
HOLD
Downgrade
BUY
ATX
A.T. Cross
SELL
Downgrade
HOLD
AXTI
AXT
SELL
Downgrade
HOLD
CCC
Calgon Carbon
BUY
Upgrade
HOLD
CIA
Citizens
HOLD
Downgrade
BUY
CNL
Cleco
HOLD
Downgrade
BUY
CRK
Comstock Resources
HOLD
Downgrade
BUY
GNI
Great Northern Iron Ore
BUY
Upgrade
HOLD
HANS
Hansen Natural
HOLD
Downgrade
BUY
HPQ
Hewlett-Packard
HOLD
Downgrade
BUY
HT
Hersha Hospitality Trust
SELL
Downgrade
HOLD
HTV
Hearst-Argyle Television
SELL
Downgrade
HOLD
IGLD
Internet Gold Golden Lines
SELL
Downgrade
HOLD
ITWO
I2 Technologies
HOLD
Upgrade
SELL
LNT
Allliant Energy
HOLD
Downgrade
BUY
OLN
Olin
SELL
Downgrade
HOLD
SEYE
Signature Eyewear
SELL
Downgrade
HOLD
SGMS
Scientific Games
SELL
Downgrade
HOLD
SJW
SJW
HOLD
Downgrade
BUY
SMLC
012 Smile Communications
SELL
Initiated
TLVT
Telvent
HOLD
Upgrade
SELL
UTR
Unitrin
SELL
Downgrade
HOLD

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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