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TSC Ratings' Updates: Cash America

TheStreet.com Ratings Staff

The following ratings changes were generated on Thursday, Dec. 4.

We've downgraded Copart(CPRT Quote) from buy to hold. Strengths include its robust 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 also find weaknesses including a decline in the stock price during the past year and weak operating cash flow.

Revenue rose by 34% since the same quarter a year ago, exceeding the industry average of 3.9% and boosting earnings per share. Copart's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying very successful management of debt levels. The company also maintains an adequate quick ratio of 1.32, which illustrates the ability to avoid short-term cash problems. Return on equity has improved slightly when compared with the same quarter one year prior, which can be construed as a modest strength in the organization. On the basis of ROE, Copart undperperformed the commercial services and supplies industry but outperformed the S&P 500.

Net operating cash flow has declined marginally to $53.62 million, or 2.13% when compared with the same quarter last year, but Copart is in line with the industry average cash flow growth rate of -7.26%. Shares have plunged by 36.92% on the year, apparently dragged down by the decline we have seen in the S&P 500, but the stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

We've downgraded pawnshop owner and operator Cash America(CSH Quote) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year, weak operating cash flow and poor profit margins.

Revenue increased by 8.9% since the same quarter a year ago, outpacing the industry average or 0.8%. The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying a relatively successful effort in the management of debt levels. Cash America also has a quick ratio of 1.99, which demonstrates the ability of the company to cover short-term liquidity needs.

EPS declined by 7.3% in the most recent quarter compared with the same quarter a year ago. This company has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, it increased its bottom line by earning $2.62 vs. $2.00 in the prior year. This year, the market expects an improvement in earnings to $3.08. Net operating cash flow has decreased to $63.52 million, or 10.35% when compared with the same quarter last year, but Cash America is still fairing well by exceeding its industry average cash flow growth rate of -46.69%. Shares are down 28.41% over the past year, probably due to the decline in the broader market, which was even more sharp, and the company's week EPS results. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

We've downgraded Global Payments(GPN Quote), which provides payment processing and consumer money transfer services worldwide, from buy to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we find that the stock has had a decline in price during the past year.

Revenue rose by 30.5% since the same quarter a year ago, outpacing the industry average of 16.2%. and boosting EPS. Although the debt-to-equity ratio of 0.19 is very low, it is currently higher than that of the industry average. Global Payments also has a quick ratio of 1.66, which demonstrates the ability of the company to cover short-term liquidity needs. Net income rose 32% compared with the same quarter a year ago, the S&P 500 and the IT services industry.

Shares are down 23.7% on the year, reflecting, in part, the market's overall decline. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

We've downgraded industrial plant engineering and equipment supply company KHD Humboldt Wedag International(KHD Quote) from hold to sell, driven by a generally disappointing historical performance in the stock itself.

KHD's gross profit margin is rather low at 22.7%, though it has increased from the same period last year. Its net profit margin of 15.2%, on the other hand, significantly outperformed the industry. Return on equity has improved slightly when compared with the same quarter one year prior, which can be construed as a modest strength in the organization. On the basis of ROE, KHD underperformed the construction and engineering industry but outperformed the S&P 500.

KHD reported significant earnings per share improvement in the most recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years, which we feel should continue, suggesting that the performance of the business is improving. During the past fiscal year, KHD increased its bottom line by earning $1.68 vs. $1.22 in the prior year. This year, the market expects an improvement in earnings to $2.15. The net income growth of 161.4% since the same quarter a year has significantly exceeded that of the S&P 500 and the construction and engineering industry.

Shares are down 69.3% on the 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 o other concerns, we feel the stock is still not a good buy right now.

We've downgraded investment management company W.P. Carey(WPC Quote) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year, disappointing return on equity and feeble growth in the company's earnings per share.

Revenue rose by 22.1% since the same quarter one year prior, but EPS declined. The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying successful management of debt levels. Net operating cash flow has increased to $20.3 million, or 27.6% when compared with the same quarter last year, but the company is still growing at a significantly lower rate than the industry average of 232.31%. Return on equity has greatly decreased from the same quarter one year prior, a signal of major weakness within the corporation. On the basis of ROE, W.P. Carey outperformed the industry average but underperformed the S&P 500.

Shares are down 35.3% over the past year, likely due to the broader market decline, which was even sharper, and the company's weak EPS results. 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.

Other ratings changes include Red Lion Hotels(RLH Quote) and American WoodMark(AMWD Quote), both downgraded from hold to sell.

All ratings changes generated on Dec. 4 are listed below.

For those reasons, we believe a rating alone cannot tell the whole story, and that it should be part of an investor's overall research.