TSC Ratings' Updates: Stryker

• ByTSC Ratings,
• On 5:24 pm EDT, Thursday June 11, 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 Thursday, June 11.

We've upgraded 99 Cents Only Stores from hold to buy, driven by its revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Revenue rose by 13.3% since the same quarter last year, and EPS improved. We think that the company's yearlong trend of positive EPS growth should continue. Net income increased to $7 million from -$4.4 million in the prior-year quarter. The 39.3% gross profit margin also increased, though the 2.1% net profit margin trails the industry average. Net operating cash flow increased by 37.3% to $25.2 million.

We've upgraded Steris from hold to buy, driven by its increase in net income, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, notable return on equity and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Net income increased by 6.5% compared with the same quarter last year, from $26.1 million to $27.8 million. Steris' debt-to-equity ratio of 0.3 is very low and below the industry average. Its quick ratio or 1.9 demonstrates an ability to cover shot-term liquidity needs. Return on equity had improved slightly compared with the year-ago quarter, and net operating cash flor rose 20.8% to $59.1 million.

We've upgraded Stryker from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, growth in earnings per share, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Stryker's debt-to-equity of 0 is below the industry average, and its 2.8 quick ratio demonstrates an ability to cover short-term cash needs. EPS improved slightly compared with the year-ago quarter, and we feel that the company's two-year trend of positive EPS growth should continue. ROE improved slightly from the same quarter last year, and net operating cash flow rose 42.8% to $272.4 million.

We've downgraded TFS Financial from hold to sell, driven by its unimpressive growth in net income, premium valuation, decline in the stock price during the past year, poor profit margins and weak operating cash flow.

net income fell 61.1% compared with the year-ago quarter, from $14.8 million to $5.8 million. The 34.8% gross profit margin has decreased from the same quarter last year, while the 4.1% net profit margin is above the industry average. Net operating cash flow fell significantly to -$47.5 million.

Shares are down 11.6% over the past year, in part reflecting the market's overall decline. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next 12. Naturally, a bull or bear market could sway the movement of this stock.

We've upgraded Transatlantic Holdings from hold to buy, driven by its solid financial position based on a variety of debt and liquidity measures that we have evaluated. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Transatlantic's debt-to-equity ratio of 0.2 is below the industry average. Revenue fell by 9.3% since the year-ago quarter but outperformed the industry average. EPS decreased by 34.7%, though we anticipate the company's two-year trend of declining EPS to reverse over the coming year. Net income fell 34.9% from the year-ago quarter, from $115.7 million to $75.2 million.

Shares are down 29.8% over the past year, in part reflecting the overall decline in the broad market. Looking ahead, the stock's sharp decline over the past year may have been what was needed in order to bring its value into alignment with its fundamentals and others in its industry.

All ratings changes from June 11 are listed below.

Ticker Company Current Change Previous BERL Berliner Communications SELL Downgrade HOLD CHNG China Natural Gas SELL Initiated CHSI Catalyst Health Solutions BUY Upgrade HOLD CMKG MKTG SELL Downgrade HOLD DEWY Dewey Electronics SELL Downgrade HOLD ELST Electronic Systems HOLD Upgrade SELL ENPT En Pointe Technologies HOLD Upgrade SELL EXPD Expeditors International BUY Upgrade HOLD GLP Global Partners BUY Upgrade HOLD INSM Insmed HOLD Upgrade SELL KNSY Kensey Nash BUY Upgrade HOLD NAII Natural Alternatives HOLD Upgrade SELL NDN 99 Cents Only Stores BUY Upgrade HOLD PLL Pall BUY Upgrade HOLD RUBO Rubio's Restaurants HOLD Upgrade SELL STE Steris BUY Upgrade HOLD SYK Stryker BUY Upgrade HOLD TFSL TFS Financial SELL Downgrade HOLD TRH Transatlantic Holdings BUY Upgrade 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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