We've downgraded Reliant Energy (RRI), which provides electricity and energy services, from hold to sell, driven by its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Net income decreased by 739.2% over the same quarter a year ago, to -$1,037.92 million, underperforming the S&P 500 and the independent power producers and energy traders industry. ROE has slightly decreased and significantly trails the industry average and the S&P 500. Net operating cash flow has significantly decreased to $77.24 million, or 74.81% when compared with the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
EPS have declined steeply, by 760%, in the most recent quarter year over year. During the past fiscal year, Reliant earned $1 vs. -$1.07 I the prior year, and the market expects a contraction of 96% to 4 cents for the next year. Share are down 78.96%, underperforming the S&P 500. 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.
We've downgraded U.S. Bancorp (USB) from buy to hold. Strengths include its expanding profit margins and notable return on equity. Weaknesses include a decline in the stock price during the past year, feeble growth in the company's earnings per share and deteriorating net income.
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