Each business day, TheStreet.com Ratings TheStreet.com Ratings compiles a list of the top five stocks in one of five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- based on data from the close of the previous trading session. Today we focus on mid-caps. These are stocks of companies that have market capitalizations of between $500 million and $10 billion that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are ordered by their potential to appreciate. Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans. HMS Holdings ( HMSY) provides a variety of cost containment and payment accuracy services relating to government healthcare programs. We have rated this stock a buy since September 2004 on the basis of such strengths as the company's largely solid financial position, good cash flow from operations, and growth in revenue, net income, and earnings per share. For the fourth quarter of fiscal 2008, the company reported that its earnings surged 74.9% on higher revenue. Net income rose from $4 million in the fourth quarter of fiscal 2007 to $7.1 million in the most recent quarter. Revenue increased 25.8% year over year, greatly exceeding the industry average of 7%. This increase, led by strong revenue growth in each of the government healthcare program markets, appears to have helped boost EPS, which showed significant improvement over the same quarter a year ago, rising from 15 cents to 26 cents per share. HMS Holdings has a very low debt-to-equity ratio of 0.1, which implies that it has successfully managed its debt levels. In addition, a quick ratio of 3.2 clearly demonstrates an ability to cover short-term cash needs. Finally, net operating cash flow increased 17.5% when compared to the same quarter of last year.
Having had a record year in terms of revenue growth and profitability, the company expects to see strong results continue into the next fiscal year. Looking ahead to fiscal 2009, HMS Holdings raised its earnings outlook to $1 per share from previous guidance of 96 cents per share. The company is currently trading at a premium valuation, but we feel that the strengths detailed above justify the higher price at this time. Pegasystems' ( PEGA) business management software helps companies manage complex, changing business processes by automating decision-making and the implementation of those decisions. We have rated the company a buy since May 2008. This rating is based on the company's growth, solvency, and expanding profit margins. For the fourth quarter of fiscal 2008, the company reported revenue growth of 26.9% year over year. Continuing an impressive record of earnings per share (EPS) growth, Pegasystems' EPS improved significantly, rising from $3 cents to 8 cents per share. Net income also increased in the fourth quarter, surging 99.6% from $1.4 million to $2.8 million. Both revenue and net income growth exceeded the averages for the Software industry. Pegasystems' gross profit margin is rather high at 64.8%; it has increased from the same quarter a year ago. The company has no debt to speak of, and its resulting debt-to-equity of zero can be seen as a favorable sign. In addition, Pegasystems maintains a quick ratio of 3.4, which clearly demonstrates its ability to cover short-term cash needs. Management reported that the company's fourth quarter revenue was a record for the company. Pegasystems also achieved record new license signings for the quarter. Looking ahead to fiscal 2009, the company currently expects full-year revenue to top $250 million, while net income could surpass $17 million on a GAAP basis. The company's weak operating cash flow is a concern, but we feel that the strengths detailed above outweigh any potential weakness at this time.
Quality Systems ( QSII) develops and markets healthcare information systems that automate medical and dental practices, networks of practices such as physician hospital organizations, ambulatory care centers, community health centers, and medical and dental schools. We have rated Quality Systems a buy since November 2001 due to its efficiency, solvency, and growth in revenue, net income, and EPS. Solid stock price performance also supports this rating. For the third quarter of fiscal 2009, the company reported that its revenues rose 36.1% year over year. The company announced that its net revenue results were a record for the company. A 15% improvement in EPS implies that the revenue growth trickled down to the bottom line. The company has achieved positive EPS growth routinely over the past two years, and we feel that this trend should continue. Net income also increased in the third quarter, rising 17.3% from $11.2 million to $13.2 million. Quality Systems has no debt to speak of, giving it a debt-to-equity ratio of zero. We consider this a favorable sign, as is a quick ratio of 2, which demonstrates the company's ability to cover its short-term liquidity needs. Quality Systems' stock has risen over the past year, reflecting the earnings growth and other positive factors like the ones cited above. Although this increase has driven to the stock to a level that is somewhat expensive to the rest of the Software industry, we feel that the company's strengths justify the higher price level at this time. Sybase ( SY) provides enterprise and mobile software solutions for information management, development and data integration in commerce, communications, finance, government, defense, manufacturing, transportation and healthcare. We have rated the company a buy since October 2004. This rating is supported by such factors as the company's growth, efficiency, and solvency.
For the fourth quarter of fiscal 2008, Sybase reported slight revenue growth of 3.3% year over year. This growth does not appear to have trickled down to the company's bottom line, however, as EPS dropped from 81 cents to 58 cents. Net operating cash flow improved slightly when compared to the same quarter last year, increasing 1.3% to $84.5 million. The gross profit margin is very high at 80.30% and has increased from the prior year's quarter. Sybase's debt-to-equity ratio is low at 0.6, but is higher than the industry average, indicating that the company may need to further evaluate its debt management. The return on equity can be construed as a modest strength of the organization, as it has improved slightly when compared to the same quarter of last year. Management announced that its quarterly and full-year results were the best in company history. Looking forward to the first quarter of fiscal 2009, Sybase expects to achieve revenue in the range of $260 million to $270 million, along with non-GAAP fully diluted EPS in the range of 40 cents to 42 cents and GAAP EPS in the range of 27 cents to 29 cents. Sybase has shown sub par net income growth recently, but we feel that the strengths detailed above outweigh that weakness at this time. Green Mountain Coffee Roasters ( GMCR) is a specialty coffee company that sells more than 100 coffee selections in the U.S. and internationally. We have rated the company a buy since May 2008 on the basis of its growth, notable ROE and good cash flow from operations.
Green Mountain posted very impressive revenue growth in the first quarter of fiscal 2009, especially in comparison to the average in the Food Products industry. The company's revenue increased 55.8% year-over-year, while the industry average was 0.1%. EPS improved for the eighth consecutive quarter, rising from 12 cents to 56 cents. This is a trend that we feel should continue for the company. Additionally, net income surged 391.8% when compared to the same quarter a year ago, rising from $2.9 million to $14.4 million. Net sales increased 56% in the first quarter, largely due to strong sales of Keurig brewers during the holiday season. Another clear sign of strength for Green Mountain is a current ROE that exceeded that of the prior year's quarter. Net operating cash flow also increased significantly in the first quarter, rising 497.1% to $40.5 million. Management stated that its first quarter results provided the company with a very strong start for fiscal 2009. Looking forward, the company raised its estimates for fiscal year 2009. Green Mountain now anticipates net sales growth of 43% to 48%, with full diluted GAAP EPS in the range of $1.65 to $1.75 per share. While the company is now trading at a premium compared to its peers, we feel that the strengths detailed above justify the higher price level at this time. Read more about Green Mountain here. Our quantitative rating, which can be viewed for any stock through our stock screener stock rating screener, is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks. 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 should be part of an investor's overall research.