Ratings Changes: MasterCard, Southwestern

TheStreet.com 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 total return performance.

BOSTON ( TheStreet) -- TheStreet.com's stock-rating model upgraded Canadian Pacific Railway ( CP) to "buy."

The numbers: Second-quarter revenue decreased 16% to $1 billion as net income inched up 2% to $157 million. Earnings per share fell 7% to 93 cents, hurt by a significantly higher share count. The operating margin climbed from 21% to 22% and the net margin jumped from 13% to 15%. A quick ratio of 0.6 indicates a weak liquidity position, but the cash balance has grown 313% to $157 million since the year-earlier quarter. And a debt-to-equity ratio of 0.7 demonstrates reasonable leverage.

The stock: Canadian Pacific has increased 33% in 2009, beating major U.S. indices. At a 2009 price-to-earnings ratio of 17, the stock is on par with the S&P 500 Index, but at a discount to its peer group.

The model upgraded transaction-processor MasterCard ( MA) to "buy."

The numbers: Second-quarter revenue increased 3% to $1.3 billion as the company swung to a profit of $349 million, or $2.67 per share, from a loss of $746 million, or $5.74 per share, in the year-earlier period, helped by improved pricing, more transactions processed, and fewer rebates and incentives. The operating margin increased from 33% to 44% and the net margin climbed from negative territory to 27%. MasterCard has an outstanding financial position, especially when considering its size. A quick ratio of 1.3 indicates strong liquidity and the balance sheet holds just $21 million of debt, reflecting minimal leverage.

The stock: MasterCard is up 36% in 2009, beating major U.S. indices. The stock trades at a 2009 price-to-earnings ratio of 18 and a 2010 P/E ratio of 15, but offers a dividend yield below 1%.

The model upgraded oil-and-gas producer Southwestern Energy ( SWN) to "buy."

The numbers: Second-quarter revenue fell 21% to $477 million as net income dropped 11% to $121 million and earnings per share declined 10% to 35 cents. The operating margin deteriorated from 42% to 38%, but the net margin increased from 23% to 25%. A debt-to-equity ratio of 0.4 reflects restrained leverage. Southwestern Energy will benefit from a rebound in natural gas prices.

The stock: Southwestern Energy has surged 42% in 2009, beating major U.S. indices. The stock trades at an expensive 2009 price-to-earnings ratio of 27 and a 2010 P/E ratio of 18. Southwestern Energy doesn't pay dividends.

The model upgraded diversified miner Teck Resources ( TCK) to "hold."

The numbers: Second-quarter revenue decreased 5% to $1.7 billion as net income climbed 15% to $570 million. But earnings per share fell 5% to $1.07, hurt by a significantly higher share count. The operating margin decreased from 43% to 34%, but the net margin improved from 28% to 33%. A quick ratio of 1 indicates adequate liquidity. And a debt-to-equity ratio of 0.9 reflects acceptable, but higher-than-ideal, leverage.

The stock: Teck Resources is up 434% in 2009 on hopes for a commodities rebound. But the stock is still affordable at a 2009 price-to-earnings ratio of 16 and a 2010 P/E ratio of 14. Teck pays inconsistent dividends.

The model upgraded trash collector and recycler Waste Management ( WMI) to "buy."

The numbers: Second-quarter revenue declined 15% to $2.9 billion as earnings tumbled 22% to $247 million, or 50 cents per share. The operating margin remained strong at 18%, but the net margin deteriorated from 9% to 8%. The balance sheet holds $528 million of cash reserves, indicating sound liquidity. But a debt-to-equity ratio of 1.4 reflects excessive leverage.

The stock: Waste Management is down 15% in 2009, underperforming major U.S. indices. The stock trades at a 2009 price-to-earnings ratio of 14 and a 2010 P/E ratio of 13, indicating a vast discount to the market. Waste Management offers an attractive 4% dividend yield, which is higher than the S&P 500 average.

-- Reported by Jake Lynch in Boston.

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