TSC Ratings' Updates: General Dynamics

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

The following ratings changes were generated on Wednesday, May 27.

We've upgraded Entergy ( ETR) from hold to buy, driven by its attractive valuation levels, considering its current price compared to earnings, book value and other measures. We feel these strengths outweigh the fact that the company has had generally poor debt management on most measures that we evaluated.

Earnings per share declined by 23.1% in the most recent quarter compared with the year-ago quarter, but we feel it is poised for EPS growth in the coming year. Revenue dropped by 2.6% since the year-ago quarter, and net income fell by 23.4%, from $313.8 million to $240.3 million.

Shares have plunged 38.8% over the past year, probably driven in part by the decline of similar magnitude in the overall market. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.

We've upgraded General Dynamics ( GD) from hold to buy, driven by its revenue growth, increase in net income, attractive valuation levels, notable return on equity and growth in earnings per share. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Revenue rose by 18% since the same quarter last year, and EPS increased 8.4%, though we anticipate underperformance in the coming year relative to the company's two-year pattern of positive EPS growth. Net income rose 3.1%, from $572 million to $590 million. ROE also rose, a sign of strength within the company.

We've upgraded Kellogg ( K) from hold to buy, driven by its increase in net income, notable return on equity, growth in earnings per share, expanding profit margins and relatively strong performance when compared with the S&P 500 during the past year. We feel these strengths outweigh the fact that the company has had generally poor debt management on most measures that we evaluated.

Net income rose 1.9% compared with the year-ago quarter, from $315 million to $321 million. ROE also increased, a signal of strength within the corporation. EPS rose slightly, and we feel that the company's two-year trend of positive EPS growth should continue. Kellogg's gross profit margin of 44.4% is strong, though it's decreased from the same period last year. The company's 10.1% net profit margin compares favorably with the industry average. Revenue fell by 2.3% since the year-ago quarter.

We've upgraded Occidental Petroleum ( OXY) from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Occidental's debt-to-equity ratio of 0.1 is below the industry average, but it has a quick ratio of 0.9, which could be cause for future problems. Its gross profit margin of 44.3% is strong, though it's decreased significantly from the same period last year. The company's net profit margin of 12% compared favorably with the industry average. Revenue fell by 49% since the year-ago quarter, and EPS declined. We feel that the company is likely to report an earnings decline in the coming year. Net income fell 80.1% compared with the same quarter a year ago, from $1.8 billion to $368 million.

We've downgraded Telefonos de Mexico ( TMX) from buy to hold. Strengths the company's notable return on equity and expanding profit margins. However, we also find weaknesses including deteriorating net income, generally poor debt management and a generally disappointing performance in the stock itself.

Telefonos de Mexico's return on equity outperforms but the diversified telecommunication services industry and the overall market. Its gross profit margin is 63.4%, though it has decreased from the same period last year. The net profit margin of 15.9% compared favorably with the industry average. Revenue fell by 27.8% since the year-ago quarter, and EPS decreased. Net income fell 36.1%, from $524.4 million to $334.9 million. The company's debt-to-equity ratio of 2.8 is above the industry average, and its quick ratio is 0.6.

All ratings changes from May 27 are listed below.

Ticker
Company
Current
Change
Previous
AMPL Ampal-American Israel SELL Downgrade HOLD
AWK American Water Works HOLD Initiated -
CACC Credit Acceptance HOLD Downgrade BUY
CBNJ Cape Bancorp HOLD Initiated -
CSU Capital Senior Living HOLD Upgrade SELL
CWSI China Wind Systems HOLD Upgrade SELL
ETR Entergy BUY Upgrade HOLD
FRT Federal Realty Investment HOLD Downgrade BUY
GD General Dynamics BUY Upgrade HOLD
GFF Griffon HOLD Upgrade SELL
HTS Hatteras Financial SELL Initiated -
K Kellogg BUY Upgrade HOLD
LLY Eli Lilly HOLD Upgrade SELL
MMSI Merit Medical Systems BUY Upgrade HOLD
OXY Occidental Petroleum BUY Upgrade HOLD
SBR Sabine Royalty Trust BUY Upgrade HOLD
TFONY Telefonos de Mexico HOLD Downgrade BUY
TIN Temple-Inland HOLD Upgrade SELL
TMRK Terremark Worldwide HOLD Upgrade SELL
TMX Telmex-Telefonos de Mexico HOLD Downgrade BUY
TSM Taiwan Semiconductor HOLD Downgrade BUY
WAT Waters BUY Upgrade HOLD
WGOV Woodward Governor BUY Upgrade HOLD
WPP Wausau Paper HOLD Upgrade SELL

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.

TheStreet.com Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!

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