TSC Ratings' Updates: JetBlue

The following ratings changes were generated on Wednesday, March 4.

We've downgraded home furnishings retailer Ethan Allen Interiors ( ETH) from hold to sell, driven by its feeble growth in its earnings per share, weak operating cash flow, generally disappointing historical performance in the stock itself, generally weak debt management and disappointing return on equity.

The company has experienced a steep decline of 72.9% in earnings per share in the most recent quarter compared with the same quarter last year, and we anticipate its two-year trend of declining EPS to continue in the coming year. Net operating cash flow decreased significantly to -$2.4 million compared with the year-ago quarter, and return on equity also greatly decreased, a signal of major weakness within the corporation. Ethan Allen's debt-to-equity ratio of 0.5 is low but is higher than the industry average. Its low 0.6 quick ratio demonstrates weak liquidity.

Shares have tumbled 67.4% over the year, underperforming 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 JetBlue Airways ( JBLU) from hold to sell, driven by its deteriorating net income, generally weak debt management, disappointing return on equity, poor profit margins and weak operating cash flow.

Net income decreased from -$4 million in the year-ago quarter to -$57 million, significantly underperforming the S&P 500 and the airlines industry. JetBlue's 2.5 debt-to-equity ratio is very high, though it's lower than the industry average. Its quick ratio of 0.7 demonstrates its lack of ability to cover short-term liquidity needs. ROE decreased from the year-ago quarter, a clear sign of weakness. The 29.8% gross profit margin is lower than desirable, though it has increased form the same period last year. Net operating cash flow decreased significantly to -$126 million since the year-ago quarter.

We've downgraded automobile insurance company Mercury General ( MCY) from hold to sell, driven by its deteriorating net income, disappointing return on equity, decline in the stock price during the past year and feeble growth in its earnings per share.

Net income fell to -$168.4 million in the most recent quarter from $44.6 million in the year-ago quarter, significantly underperforming the S&P 500 and the insurance industry. ROE als greatly decreased, a signal of major weakness. Mercury General has experienced a steep decline of 479% compared with the year-ago quarter, though the consensus estimate suggests that its two-year trend of declining EPS should reverse in the coming year. Revenue fell 26.8% since the same quarter last year.

Over the past year, shares have fallen 43.3%, in part reflecting the overall decline in the broader market. 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 pharmaceutical company Warner Chilcott ( WCRX) from hold to sell, driven by its deteriorating net income, disappointing return on equity, weak operating cash flow, decline in the stock price during the past year and feeble growth in its earnings per share.

Net income fell to -$115.7 million from $19.7 million in the same quarter last year, significantly underperforming the S&P 500 and the pharmaceuticals industry. ROE decreased slightly, implying a minor weakness in the organization. Net operating cash flow fell by 2.6% to $103.1 million compared with the year-ago quarter, outperforming the industry average. EPS fell by 675%, though the consensus estimate suggests that the company's yearlong trend of declining EPS should reverse in the coming year.

Shares have plunged 36.8% over the past year, though the performance of the broader market was even worse. 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.

Other ratings changes included Quest Software ( QSFT), downgraded from buy to hold; Lennox International ( LII), downgraded from buy to hold; and Ion Geophysical ( IO), downgraded from hold to sell.

All ratings changes generated on March 4 are listed below.

  
Ticker
Company
Current
Change
Previous
ABII
Abraxis Bioscience
HOLD
Initiated
ACBA
American Community Bancshares
SELL
Downgrade
HOLD
APH
Amphenol
HOLD
Downgrade
BUY
AVA
Avista
HOLD
Downgrade
BUY
AZN
AstraZeneca
HOLD
Downgrade
BUY
CNQR
Concur Technologies
HOLD
Downgrade
BUY
CRY
CryoLife
HOLD
Downgrade
BUY
ETH
Ethan Allen Interiors
SELL
Downgrade
HOLD
FSTR
L.B. Foster
HOLD
Downgrade
BUY
GNCMA
General Communication
SELL
Downgrade
HOLD
IO
Ion Geophysical
SELL
Downgrade
HOLD
JBLU
JetBlue Airways
SELL
Downgrade
HOLD
LII
Lennox International
HOLD
Downgrade
BUY
MCY
Mercury General
SELL
Downgrade
HOLD
ONFC
Oneida Financial
HOLD
Upgrade
SELL
PRGX
PRG-Schultz International
HOLD
Upgrade
SELL
PSSI
PSS World Medical
HOLD
Downgrade
BUY
QSFT
Quest Software
HOLD
Downgrade
BUY
RENT
Rentrak
HOLD
Downgrade
BUY
RIC
Richmont Mines
HOLD
Upgrade
SELL
RLI
RLI
HOLD
Downgrade
BUY
WCRX
Warner Chilcott
SELL
Downgrade
HOLD
XPO
Express-1 Expedited Solutions
HOLD
Downgrade
BUY
YPF
Yacimientors Pete Fiscales
HOLD
Downgrade
BUY

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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