TSC Ratings' Updates: International Paper

The following ratings changes were generated on Thursday, March 5.

We've downgraded footwear retailer Brown Shoe ( BWS) from hold to sell, driven by its deteriorating net income, disappointing return on equity, weak operating cash flow, generally weak debt management and generally disappointing historical performance in the stock itself.

Net income fell to -$153.1 million in the most recent quarter from $14 million in the same quarter last year, significantly underperforming the S&P 500 and the specialty retail industry. Return on equity also greatly decreased, a signal of major weakness within the corporation. Net operating cash flow significantly decreased to -$7.2 million, underperforming the industry average. Brown Shoe's debt-to-equity ratio of 0.7 is somewhat low overall but is high compared with the industry average. Its quick ratio of 0.5 is very low, demonstrating weak liquidity.

Shares have tumbled by 78.4% over the year, underperforming the S&P 500, and EPS are down 1,215.2% 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.

We've downgraded ConocoPhillips ( COP) from hold to sell, driven by its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally weak debt management.

Net income decreased to -$31.8 billion from $4.4 billion in the year-ago quarter, significantly underperforming the S&P 500 and the oil, gas and consumable fuels industry. ROE also greatly decreased, a signal of major weakness. Conoco's gross profit margin of 18.2% is rather low, having decreased from the year-ago quarter, and its net profit margin of -77.4% is significantly below the industry average. Net operating cash flow fell 54.9% to $3.1 billion compared with the year-ago quarter. Conoco's 0.6 debt-to-equity ratio is somewhat low overall but is high compared with the industry average. Its quick ratio of 0.6 is low, demonstrating weak liquidity.

We've downgraded restaurant developer DineEquity ( DIN) from hold to sell, driven by its deteriorating net income, disappointing return on equity, weak operating cash flow, generally weak debt management and generally disappointing historical performance in the stock itself.

Net income fell from -$14.3 million in the year-ago quarter to -$137.1 million, significantly underperforming the S&P 500 and the hotels, restaurants and leisure industry. ROE also greatly decreased, a signal of major weakness. Net operating cash flow fell 17.4% to $49.6 million. DineEquity's very high 10.3 debt-to-equity ratio is higher than the industry average, implying very poor management of debt levels. Its quick ratio is somewhat strong, however, at 1.1, demonstrating its ability to handle short-term liquidity needs.

Shares have tumbled by 83.9% over the year, underperforming the S&P 500, and EPS are down 767% compared with the year-ago 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.

We've downgraded athletic footwear retailer Foot Locker ( FL) from hold to sell, driven by its deteriorating net income, disappointing return on equity, poor profit margins, decline in the stock price during the past year and feeble growth in its earnings per share.

Net income fell from $85 million in the year-ago quarter to -$126 million, significantly underperforming the S&P 500 and the specialty retail industry. ROE is also lower than it was in the year-ago quarter. Foot Locker's 28.7% gross profit margin is lower than desirable, though it has increased since the year-ago period. The -9.6% net profit margin significantly underperforms the industry average.

Shares plunged 33% over the year, and EPS sank by 251.9% compared with the year-ago quarter. The only silver lining is that the performance of the broader market is 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.

We've downgraded paper and packaging company International Paper ( IP) from hold to sell, driven by its generally weak debt management, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

IP's debt-to-equity ratio is very high at 2.9 and currently higher than the industry average, implying very poor management of debt levels. Its 0.9 quick ratio illustrates its inability to avoid short-term cash problems. ROE greatly decreased compared with the same quarter last year, a signal of major weakness. IP's 17.6% gross profit margin is rather low, having decreased from the year-ago period.

Shares tumbled 85.5% over the year, underperforming the S&P 500, and EPS are down 632.5% compared with the year-ago 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 included CNX Gas ( CXG), downgraded from buy to hold, and Cubist Pharmaceuticals ( CBST), downgraded from buy to hold.

All ratings changes generated on March 5 are listed below.

 
Ticker
Company
Current
Change
Previous
ALY
Allis-Chalmers Energy
SELL
Downgrade
HOLD
BWS
Brown Shoe
SELL
Downgrade
HOLD
CBST
Cubist Pharmaceuticals
HOLD
Downgrade
BUY
COP
ConocoPhillips
SELL
Downgrade
HOLD
CXG
CNX Gas
HOLD
Downgrade
BUY
DIN
DineEquity
SELL
Downgrade
HOLD
FL
Foot Locker
SELL
Downgrade
HOLD
HEES
H&E Equipment Services
HOLD
Upgrade
SELL
HEI.A
Heico
HOLD
Downgrade
BUY
IP
International Ppaer
SELL
Downgrade
HOLD
IVC
InvaCare
HOLD
Downgrade
BUY
NWPX
Northwest Pipe
HOLD
Downgrade
BUY
QDEL
Quidel
HOLD
Downgrade
BUY
SBR
Sabine Royalty Trust
HOLD
Downgrade
BUY
SONE
S1
HOLD
Downgrade
BUY
TECH
Techne
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.

More from Investing

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

At End of May, Investors Signalling They May Stay Away

At End of May, Investors Signalling They May Stay Away

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever