TSC Ratings' Updates: General Electric

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, June 24.

We've upgraded Computer Task Group(CTGX Quote) from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, notable return on equity and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Computer Task Group has no debt to speak of and a quick ratio of 1.6, demonstrating its ability to cover short-term liquidity needs. The company's return on equity has improved slightly compared with the year-ago quarter, which can be construed as a modest strength in the organization, outperforming the S&P 500 but underperforming the industry average. Earnings per share were flat in the most recent quarter compared with the same quarter last year. During the past fiscal year, EPS increased to 50 cents vs. 26 cents in the prior year, but we feel the company is likely to report a decline in earnings in the coming year to 35 cents a share.

It goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

We've downgraded General Electric(GE Quote) from hold to sell, driven by its feeble growth in its earnings per share, generally weak debt management, weak operating cash flow and generally disappointing historical performance in the stock itself.

EPS declined by 39.5% in the most recent quarter year over year and have declined over the last two years, a trend we anticipate should continue in the coming year. GE's debt-to-equity ratio is very high at about 5, which is above the industry average, implying very poor management of debt levels within the company. Net operating cash flow fell to -$464 million in the most recent quarter. ROE has decreased slightly compared with the year-ago quarter but still outperforms both the industry average and the S&P 500.