Note: Our quantitative model makes stock recommendations based on GAAP figures that may differ materially from data as reported by the companies themselves. As a result, rating changes are occasionally driven by so-called nonrecurring items. As always, we urge readers to use TSC Ratings' reports in conjunction with additional information to construct their opinions on the value that should be placed on any given stock.

The following ratings changes were generated on Tuesday, March 24.

We've initiated coverage on apparel retailer American Apparel ( APP) at sell, driven by the company's debt management.

American Apparel's 0.8 debt-to-equity ratio is somewhat low overall but higher than the industry average. Its quick ratio of 0.4 is low, suggesting possibly weak liquidity. Earnings per share declined by 16.7% in the most recent quarter compared with the same quarter last year, but we feel the company is poised for EPS growth in the coming year. Its 59.9% gross margin has increased from the year-ago period; its 2.7% net profit margin trails the industry average. Net operating cash flow improved to $20.31 million, compared with no operating cash flow in the year-ago quarter.

Shares have tumbled 59% over the past year, underperforming the S&P 500.

We've upgraded Illumina ( ILMN), which engages in the development, manufacture, and marketing of integrated systems for the analysis of genetic variation and biological function, from hold to buy. This rating is driven by the company's robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Revenue rose by 42.9% since the year-ago quarter, compared with the industry average of 2.5% growth. Illumina reported significant EPS improvement in the most recent quarter compared with the year-ago quarter, and we feel that its yearlong trend of improving EPS should continue. Net income increased from -$4.1 million in the year-ago quarter to $28.9 million, outperforming the S&P 500 and the life sciences tools and services industry. Illumina's 69.2% gross profit margin has increased from the year-ago quarter, and its 18% net profit margin outperformed the industry average. Net operating cash flow increased to $86.1 million compared with the year-ago quarter.

We've upgraded Northern Trust ( NTRS), which provides a range of banking and financial services, from hold to buy. This rating is driven by the company's growth in earnings per share, increase in net income, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Northern Trust reported significant EPS improvement in the most recent quarter compared with the year-ago quarter, and we feel that its two-year pattern of positive EPS growth should continue. Net income increased 173.8% to $342.3 million compared with the year-ago quarter. The 78.5% gross profit margin has increased from the year-ago period. Revenue dropped by 5.8%. Northern Trust's 1.4 debt-to-equity ratio is below the industry average, suggesting that this level of debt is acceptable within the capital markets industry.

We've downgraded ValueClick ( VCLK), which provides online advertising campaigns and programs for advertisers and advertising agency customers, 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 $17.5 million in the year-ago quarter to -$251.8 million, underperforming the S&P 500 and the internet software and services industry. Return on equity also decreased, which could be a signal of weakness within the corporation. Net operating cash flow fell 26.8% to $32.6 million compared with the year-ago quarter.

Shares are down 51.9% over the past year, underperforming the S&P 500, and EPS are also down 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 inVentiv Health ( VTIV), which provides value-added services to the pharmaceutical, life sciences and health care industries, from hold to sell. This rating is driven by the deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Net income fell from $15.5 million in the year-ago quarter to -$162.6 million in the most recent quarter, underperforming the S&P 500 and the health care providers and services industry. ROE also decreased, which could be a signal of weakness. inVentiv's gross profit margin is lower than desirable at 34.1%, having decreased from the same quarter last year. Its net profit margin or -57.4% is below the industry average. Net operating cash flow decreased to $15.4 million, or 64.2% compared with the same quarter last year.

Shares tumbled 71.3% over the past year, underperforming the S&P 500, and EPS are also down compared with the year-ago quarter. The stock's decline 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 American Reprographics ( ARP), downgraded from hold to sell, and TXCO Resources ( TXCO), downgraded from hold to sell.

All ratings changes generated on March 24 are listed below.

Ticker
Company
Current
Change
Previous
APP
American Apparel
SELL
Initiated
ARP
American Reprographics
SELL
Downgrade
HOLD
CML
Compellent Technologies
HOLD
Initiated
ILMN
Illumina
BUY
Upgrade
HOLD
LOJN
LoJack
SELL
Downgrade
BUY
NTRS
Northern Trust
BUY
Upgrade
HOLD
STBA
S & T Bancorp
HOLD
Downgrade
BUY
TXCO
TXCO Resources
SELL
Downgrade
HOLD
VCLK
ValueClick
SELL
Downgrade
HOLD
VTIV
Inventiv Health
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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