TSC Ratings' Updates: MGM Mirage

• ByTSC Ratings,
• On 5:12 pm EDT, Tuesday April 7, 2009

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 Tuesday, April 7.

We've upgraded Affiliated Computer Services from hold to buy, driven by its revenue growth, notable return on equity, attractive valuation levels, largely solid financial position with reasonable debt levels by most measures 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 sub par growth in net income.

Revenue increased 6.7% since the year-ago quarter. Return on equity improved, which could signal strength in the organization. EPS from the most-recent quarter were slightly below the year-earlier quarter, but we feel the company is poised for EPS growth in the coming year. ACS has a debt-to-equity ratio of 1, which is higher than the industry average. Its 1.8 quick ratio implies strong liquidity.

We've downgraded Central European Media Enterprises from hold to sell, driven by its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally weak debt management.

EPS declined in the most recent quarter compared with the year-ago quarter, continuing a two-year trend of declining EPS. Net income fell from $73 million in the year-ago quarter to -$323.3 million in the most recent quarter. ROE also decreased, implying weakness. Net operating cash flow fell to -$38.4 million.

Shares have tumbled 84.8% over the past year, underperforming the S&P 500. 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 MGM Mirage from hold to sell, driven by its deteriorating net income, generally weak debt management, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Net income fell from $872.2 million in the year-ago quarter to -$1.15 billion. MGM's debt-to-equity ratio of 3.4 is above the industry average. Its quick ratio is 0.2. ROE has decreased compared with the year-ago quarter. Net operating cash flow fell 15.1% to $242.3 million compared with the year-ago quarter.

Shares have tumbled 91% over the past year, underperforming the S&P 500, and EPS are also down. 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 Myers Industries from hold to sell, driven by its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Net income fell from $18.2 million in the year-ago quarter to -$59.1 million in the most recent quarter. ROE also decreased. Myers' gross profit margin is 29.4%, though it has increased from the same quarter last year. Its net profit margin of -31.1% is below the industry average. EPS declined compared with the year-ago quarter, though the consensus estimate suggests that the company's two-year trend of declining EPS should reverse in the coming year.

Shares have tumbled 44.8% over the past year, underperforming the S&P 500. 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 upgraded North European Oil Royalty Trust from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Revenue grew 41.1% since the same quarter last year. The company has no debt to speak of and maintains a quick ratio of 1. EPS improved by 40.8% compared with the same quarter last year, continuing a two-year pattern of EPS growth. Net income rose 41.1% compared with the year-ago quarter, from $7 million to $9.9 million. The growth profit margin is 100%, and the net profit margin is 96.7%.

Other ratings changes included Digital Realty Trust, upgraded from hold to buy, and Trico Marine Services, downgraded from hold to sell.

All ratings changes from April 7 are listed below.

Ticker Company Current Change Previous ACS Affiliated Computer Services BUY Upgrade HOLD ALXN Alexion Pharmaceuticals BUY Upgrade HOLD AMIC American Independence HOLD Upgrade SELL BANF BancFirst HOLD Downgrade BUY CETV Central European Media SELL Downgrade HOLD DLR Digital Realty Trust BUY Upgrade HOLD EWST Energy WEst HOLD Downgrade BUY HYDI Hydromer HOLD Upgrade SELL INET Internet Brands HOLD Upgrade SELL JAXB Jacksonville Bancorp SELL Downgrade HOLD KAI Kadant SELL Downgrade HOLD MGM MGM Mirage SELL Downgrade HOLD MMS Maximus BUY Upgrade HOLD MYE Myers Industries SELL Downgrade HOLD NRT North European Oil Royalty Trust BUY Upgrade HOLD ORIT Oritani Financial HOLD Upgrade SELL PABK PAB Bankshares SELL Downgrade HOLD SNWL SonicWall HOLD Upgrade SELL TBBK The Bancorp SELL Downgrade HOLD TRMA Trico Marine Services SELL Downgrade HOLD

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.

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