The following ratings changes were generated on Wednesday, June 3.

We've upgraded American Financial Group from hold to buy, driven by its revenue growth, increase in net income, good cash flow from operations, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins.

Revenue increased by 0.4% since the year-ago quarter, and EPS improved by 37.5%. We feel the company is poised for EPS growth in the coming year. Net income increased by 36.6% compared with the year-ago quarter, from $76 million to $103.8 million. Net operating cash flow increased to $422 million, or by 14.1%. AFG's debt-to-equity ratio of 0.4 is above the industry average.

We've upgraded Heico from hold to buy, driven by its 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 has had lackluster performance in the stock itself.

Heico's debt-to-equity ratio of 0.1 is low but above the industry average, and it maintains a quick ratio of 1.3. ROE has improved slightly compared with the year-ago quarter. Heico's 35.3% gross profit margin had decreased from the year-ago period. Its 8.1% net profit margin compared favorably with the industry average. Revenue fell 9.6% since the same quarter last year, and EPS decreased. Net income fell 11.8%, from $12 million to $10.5 million.

We've downgraded Hot Topic from buy to hold. Strengths include the company's revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall.

Revenue rose by 10.2% since the same quarter last year, and EPS improved. The company has a quick ratio of 1.5, which is sturdy. ROE improved slightly compared with the year-ago quarter. Net operating cash flow fell to -$3.3 million.

Shares have surged 51.7% over the past year, outperforming the S&P 500. We cannot assume, however, that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.

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

Platinum's debt-to-equity ratio of 0.1 is below the industry average. Net operating cash flor increased by 157.2% to $269.6 million compared with the same quarter last year. EPS declined by 10.2% compared with the year-ago quarter, though we anticipate that its yearlong trend of declining EPS should reverse over the coming year. Revenue fell by 15.9% since the year-ago period, and net income decreased 19.3%, from $105.2 million to $84.9 million.

We've upgraded Tetra Technologies from sell to hold. Strengths include the company's increase in net income, expanding profit margins and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow.

Net income increased by 66.9% compared with the same quarter a year ago, from $6.7 million to $11.2 million. Tetra's 40.8% gross profit margin has increased from the same quarter last year, but its net profit margin of 5.7% trails the industry average. EPS improved significantly in the most recent quarter compared with the year-ago quarter, and we feel that the company is poised for EPS growth in the coming year. Net operating cash flow fell 14.5% to $39.9 million.

Shares are down by 56.3% over the past year, underperforming the S&P 500. Naturally, the overall market trend is bound to be a significant factor. However, 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.

All ratings changes from June 3 are listed below.

Ticker Company Current Change Previous ACAP American Physicians Capital BUY Upgrade HOLD AFG American Financial Group BUY Upgrade HOLD ALOY Alloy HOLD Upgrade SELL AWRE Aware SELL Downgrade HOLD BLSW Bridgeline Software HOLD Upgrade SELL BYFC Broadway Financial BUY Upgrade HOLD CISG CNinsure HOLD Upgrade SELL CNU Continucare BUY Upgrade HOLD GEO GEO Group BUY Upgrade HOLD HEI Heico BUY Upgrade HOLD HEI.A Heico BUY Upgrade HOLD HOTT Hot Topic HOLD Downgrade BUY NVTL Novatel Wireless HOLD Upgrade SELL PAR 3Par HOLD Upgrade SELL PLBC Plumas Bancorp SELL Downgrade HOLD PTP Platinum Underwriters BUY Upgrade HOLD SHBI Shore Bancshares BUY Upgrade HOLD TITN Titan Machinery HOLD Upgrade SELL TTI Tetra Technologies HOLD Upgrade SELL

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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