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TSC Ratings' Updates: Allegiant

TheStreet.com Ratings Staff

The following ratings changes were generated on Tuesday, Dec. 9.

We've upgraded Allegiant Travel(ALGT Quote) from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Revenue rose by 35.4% since the same quarter last year, outpacing the industry average of 7% growth, but earnings per share declined. Alegiant's current debt-to-equity ratio, 0.33, is low and is below the industry average, implying successful management of debt levels. The company also maintains an adequate quick ratio of 1.27, which illustrates the ability to avoid short-term cash problems. Net income has decreased by 30.3% since the same quarter a year ago, falling from $7.02 million to $4.89 million, outperforming the airlines industry average. EPS decline 29.4% in the most recent quarter compared with the same quarter a year ago. During the past fiscal year, Allegiant turned its bottom line around by earning $1.54 vs. -11 cents in the prior year. For the next year, the market is expecting a contraction of 9.1% in earnings to $1.40.

Shares are trading above where they were a year ago, outperforming the S&P 500 despite the company's weak earnings results. The stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

We've upgraded Bank of the Ozarks(OZRK Quote) from hold to buy, driven by its increase in net income, expanding profit margins, growth in earnings per share, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Net income increased by 7.2% when compared to the same quarter one year prior, rising from $8.40 million to $9.01 million and outperforming the S&P 500 and the commercial banks industry. Bank of the Ozarks' gross profit margin for is rather high at 52.30%, having increased from the same quarter the previous year, and its net profit margin of 18.10% is above that of the industry average. Net operating cash flow has significantly increased by 64.09% to $15.26 million when compared with the same quarter last year, but the company is still growing at a significantly lower rate than the industry average of 118.5%.

Revenue declined 0.9% since the same quarter a year ago, but the declining revenue has not hurt the company's bottom line, with increasing earnings per share. EPS are up 6% in the most recent quarter compared with the same quarter a year ago. Stable earnings per share over the past two years indicate the company has sound management over its earnings and share float. During the past fiscal year, Bank of the Ozarks' EPS of $1.89 remained unchanged from the prior years' EPS of $1.89. This year, the market expects an improvement in earnings to $2.03.

We've initiated coverage on oil and gas company SandRidge Energy(SD Quote) at sell, driven by its generally disappointing historical performance in the stock itself and generally weak debt management.

The company's debt-to-equity ratio of 0.83 is somewhat low overall, but it is high when compared to the industry average. Its quick ratio of 0.33 is very low and demonstrates very weak liquidity. On the basis of return on equity, SandRidge has underperformed the oil, gas and consumable fuels industry and the S&P 500.

The company's gross profit margin is rather high at 67.7%, having increased from the same quarter the previous year. Along with this, the net profit margin of 69.00% significantly outperformed against the industry average. Net operating cash flow has significantly increased by 304.57% to $237.53 million when compared with the same quarter last year, vastly surpassing the industry average cash flow growth rate of 22.58%.

Shares are down 81.5% on the year, underperforming the S&P 500, but the tock is still more expensive (when compared with its current earnings) than most other companies in its industry.

We've upgraded South Jersey Industries(SJI Quote), which engages in the purchase, transmission, and sale of natural gas, from hold to buy, driven by its revenue growth, increase in net income, expanding profit margins, growth in earnings per share and attractive valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Revenue rose by 34.7% since the same quarter a year ago, outpacing the industry average of 33.4% growth and boosting EPS. Net income growth of 413.4% from the same quarter one year ago has significantly exceeded that of the S&P 500 and the gas utilities industry. SJI's 41.2% gross profit margin is strong, having increased significantly from the same period last year, and its net profit margin of 20.8% significantly outperformed against the industry average.

EPS improved significantly in the most recent quarter compared with the same quarter a year ago. During the past fiscal year, SJI reported lower earnings of $2.12 vs. $2.46 in the prior year. This year, the market expects an improvement in earnings to $2.30.

We've downgraded regulated electric and natural gas utility Integrys Energy Group(TEG Quote) from buy to hold. Strengths include its robust revenue growth 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, deteriorating net income and weak operating cash flow.

Return on equity has improved slightly, which can be construed as a modest strength in the organization. Revenue rose by 51.9% since the same quarter last year, outpacing the industry average of 37.2% growth, but EPS declined steeply. The company has reported a trend of declining earnings per share over the past two years, but consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, it reported lower earnings of $2.81 vs. $3.54 in the prior year, and this year, the market expects an improvement to $3.38. Net operating cash flow has significantly decreased to -$734.60 million, or 1202.48% when compared with the same quarter last year.

Shares are down 18.3% on the year, reflecting the market's overall decline, which was actually deeper, and the sharp decline in Integrys' EPS. We do not see anything in this company's numbers that would change the one-year trend. Naturally, a bull or bear market could sway the movement of this stock.

Other ratings changes include Zoltec(ZOLT Quote) and Mercantile Bancorp(MBR Quote), both downgraded from hold to sell.

All ratings changes generated on Dec. 9 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.