TSC Ratings' Updates: Microsoft

• ByTSC Ratings,
• On 9:56 am EDT, Tuesday June 9, 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 Monday, June 8.

We've upgraded Computer Sciences from hold to buy, driven by its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins.

Net income increased by 110.4% compared with the same quarter a year ago, from $181.7 million to $382.3 million. The company's debt-to-equity ratio of 0.8 is below the industry average, and its quick ratio of 1.5 demonstrates an ability to cover short-term liquidity needs. Return on equity increased greatly compared with the year-ago quarter, a signal of significant strength within the corporation. Net operating cash flow increased 25.3% to $1.1 billion.

We've upgraded Microsoft from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Microsoft's debt-to-equity ratio of 0.05 is very low and currently below the industry average, and its quick ratio of 1.5 illustrates its ability to avoid short-term cash problems. The 84.3% gross profit margin is very high, though it has decreased from the year-ago quarter, and the net profit margin of 21.8% compares favorably with the industry average. Revenue fell 5.6% since the same quarter last year, and EPS Decreased. Net income decreased by 32.1%, from $4.4 billion to $3 billion, but outperformed both the S&P 500 and the software industry average. ROE decreased slightly.

We've upgraded Magyar Telekom from hold to buy, driven by its attractive valuation levels, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Magyar's debt-to-equity ratio of 0.6 is low and below the industry average, but its quick ratio of 0.6 displays a potential problem in covering short-term cash needs. ROE increased from the same quarter a year ago, a clear sign of strength within the company. Magyar's 40.5% gross profit margin is strong, though it's decreased from the year-ago period. The 13.5% net profit margin compared favorably with the industry average. EPS declined by 33.3% in the most recent quarter compared with the year-ago quarter.

We've upgraded Rayonier from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Rayonier's debt-to-equity ratio of 0.8 is below the industry average, though its quick ratio of 0.8 could be cause for future problems. Revenue dropped by 0.3% since the year-ago quarter, and EPS decreased. Net income fell by 33.1%, from $38.7 million to $25.9 million. ROE also decreased, implying a minor weakness in the organization.

Shares are down 14.8% over the past year, in part reflecting the market's overall decline, which was actually deeper. Although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

We've upgraded Starent Networks from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Revenue rose by 30.2% since the same quarter last year, and EPS improved by 30.8%. Starent has no debt to speak of and a quick ratio of 2.3, which demonstrates its ability to cover short-term liquidity needs. ROE greatly increased compared with the year-ago quarter. The 85.6% gross profit margin has increased since the year-ago quarter, and the net profit margin of 17.5% is above the industry average.

The stock has surged by 30% over the past year, outperforming the S&P 500 during the same period. Naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.

All ratings changes from June 8 are listed below.

Ticker Company Current Change Previous AGX Argan BUY Upgrade HOLD BRC Brady BUY Upgrade HOLD COBK Colonial Bankshares HOLD Upgrade SELL CPBC Community Partners Bancorp HOLD Upgrade SELL CSC Computer Sciences BUY Upgrade HOLD FIT Health Fitness BUY Upgrade HOLD HMIN Home Inns & Hotels Management HOLD Upgrade SELL ITT ITT BUY Upgrade HOLD MSFT Microsoft BUY Upgrade HOLD MTA Magyar Telekom BUY Upgrade HOLD NED Noah Education Holdings HOLD Upgrade SELL PBHC Pathfinder Bancorp HOLD Upgrade SELL PSB PS Business Parks BUY Upgrade HOLD PTSX Point.360 HOLD Upgrade SELL RYN Rayonier BUY Upgrade HOLD SE Spectra Energy HOLD Upgrade SELL STAR Starent Networks BUY Upgrade HOLD SVLF Silverleaf Resorts HOLD Upgrade SELL TIE Titanium Metals HOLD Upgrade SELL VCGH VCG Holding 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.

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!

Buzz up!