TSC Ratings' Updates: Citigroup

We've upgraded CNX Gas(CXG Quote) from sell to hold. Strengths include its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including premium valuation and a decline in the stock price during the past year.

Revenue leaped by 98.6% since the same quarter a year ago, greatly exceeding the industry average of 29.9% growth and boosting EPS.Net income increased by 115.4%, from $31.3 million to $67.4 million, outperforming the S&P 500 and the oil, gas and consumable fuels industry. CNX reported significant EPS improvement 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 reported lower earnings of 90 cents vs. $1.05 in the prior year. This year, the market expects an improvement in earnings to $1.59.

Compared with a year ago, CXG's share price has not changed much, due to the relatively weak year-over-year performance of the overall market and the company's stagnant earnings. We do not see anything in this company's numbers that would change the one-year trend. It was down over the last 12 months, and it could be down again in the next 12. Naturally, a bull or bear market could sway the movement of this stock.

We've downgraded Grey Wolf(GW Quote), which provides onshore contract drilling services to the oil and natural gas industry in the U.S., 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 feeble growth in the company's earnings per share, deteriorating net income and weak operating cash flow.