TSC Ratings' Updates: MasterCard

The following ratings changes were generated on Tuesday, Nov. 18.

We've downgraded Frontline(FRO Quote), which engages in the ownership and operation of oil tankers, from buy to hold. Strengths include its robust revenue growth, notable return on equity and expanding profit margins. However, as a counter to these strengths, we find that the company has not been very careful in the management of its balance sheet.

Revenue leaped by 57.8% since the same quarter a year ago, exceeding the industry average of 29.7% growth and boosting earnings per share significantly 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 year, which we feel should continue, suggesting improving business performance. During the past fiscal year, Frontline increased its bottom line by earning $7.55 vs. $6.72 in the prior year. This year, the market expects an improvement in earnings to $7.82.

The debt-to-equity ratio is very high at 5.09 and currently higher than the industry average, implying very poor management of debt levels within the company. Shares are down by a sharp 25.28% on the year, but that decline was actually not as bad as the broader market plunge during the same time frame. One factor that may have helped cushion the fall somewhat was the year-over-year improvement in the company's EPS. 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.

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