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TSC Ratings' Updates: Netflix

TSC Ratings

We've upgraded Netflix (NFLX Quote), which provides online movie rental subscription services in the United States, from hold to buy. This upgrade is driven by the company's impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Netflix has improved earnings per share by 43.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Netflix increased its bottom line by earning $0.97 versus $0.71 in the prior year. This year, the market expects an improvement in earnings ($1.28 versus $0.97).

The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Internet & Catalog Retail industry average. The net income increased by 30.2% when compared to the same quarter one year prior, rising from $15.65 million to $20.37 million.

Netflix's revenue growth trails the industry average of 31.2%. Since the same quarter one year prior, revenues rose by 18.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

Netflix's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.21, which illustrates the ability to avoid short-term cash problems.

Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to other companies in the Internet & Catalog Retail industry and the overall market on the basis of return on equity, Netflix has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.

We've upgraded Corinthian Colleges (COCO Quote), which operates as a post-secondary education company in the United States and Canada, from hold to buy. This upgrade is driven by robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Corinthian Colleges' revenue growth has slightly outpaced the industry average of 14.7%. Since the same quarter one year prior, revenues rose by 18.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

The company's debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.11, which illustrates the ability to avoid short-term cash problems.

It has improved earnings per share by 40.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, Corinthian Colleges increased its bottom line by earning $0.39 versus $0.20 in the prior year. This year, the market expects an improvement in earnings ($0.59 versus $0.39).

Net operating cash flow has significantly increased by 2834.84% to $27.70 million when compared to the same quarter last year. In addition, Corinthian Colleges has also vastly surpassed the industry average cash flow growth rate of 33.14%.

The company's gross profit margin is 43.40%, which we consider to be strong. Regardless of Corinthian Colleges' high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the company's net profit margin of 1.90% is significantly lower than the same period one year prior.

We've upgraded FMC Corporation (FMC Quote), a chemical company, which provides solutions, applications, and products to various end markets worldwide, from hold to buy. This upgrade is driven by its robust revenue growth, impressive record of earnings per share growth, notable return on equity, good cash flow from operations 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.

FMC's revenue growth has slightly outpaced the industry average of 26.8%. Since the same quarter one year prior, revenues rose by 31.0%. Growth in the company's revenue appears to have helped boost the earnings per share.

FMC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FMC CORP increased its bottom line by earning $2.02 versus $1.83 in the prior year. This year, the market expects an improvement in earnings ($4.47 versus $2.02).

The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to other companies in the Chemicals industry and the overall market on the basis of return on equity, FMC CORP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500. Net operating cash flow has slightly increased to $167.70 million or 1.75% when compared to the same quarter last year. Despite an increase in cash flow, FMC CORP's cash flow growth rate is still lower than the industry average growth rate of 20.58%.

Despite currently having a low debt-to-equity ratio of 0.50, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.07 is sturdy.

We've upgraded Aurizon Mines (AZK Quote), which engages in the acquisition, exploration, development, and operation of gold properties in North America, from hold to buy. This upgrade is driven by growth in earnings per share, increase in net income and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a decline in the stock price during the past year.

Aurizon Mines reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, Aurizon Mines turned its bottom line around by earning $0.04 versus -$0.10 in the prior year.

The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Metals & Mining industry average. The net income increased by 87.7% when compared to the same quarter one year prior, rising from $3.79 million to $7.11 million.

The gross profit margin for Aurizon Mines is rather high; currently it is at 51.20%. Regardless of AZK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 20.00% trails the industry average.

Aurizon Mines' share price is down 21.06%, reflecting, in part, the market's overall decline, investors ignoring the increase in its earnings per share. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.

The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Metals & Mining industry and the overall market, Aurizon Mines' return on equity is below that of both the industry average and the S&P 500.

We've downgraded American Greetings (AM Quote), which engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide, from hold to sell. This downgrade is driven by the company's deteriorating net income, disappointing return on equity, weak operating cash flow, generally weak debt management and generally disappointing historical performance in the stock itself.

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Household Durables industry. The net income has significantly decreased by 766.2% when compared to the same quarter one year ago, falling from $29.02 million to -$193.31 million.

Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Household Durables industry and the overall market, American Greetings' return on equity significantly trails that of both the industry average and the S&P 500.

Net operating cash flow has significantly decreased to -$30.49 million or 106.20% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower. AM's debt-to-equity ratio of 0.71 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.34 is very low and demonstrates very weak liquidity.

Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 70.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 901.88% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

Other ratings changes include Arch Capital Group (ACGL Quote), upgraded from hold to buy, and ClickSoftware Technologies (CKSW Quote), downgraded from buy to hold.

All ratings changes generated on Dec. 26 are listed below.

Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates.

While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

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.