TSC Ratings' Updates: First Cash Financial

We've downgraded Unitil (UTL Quote), which engages in the retail distribution of electricity in the southeastern seacoast and capital city areas of New Hampshire, from buy to hold. The primary factors that have impacted our rating are mixed. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations 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, generally poor debt management and poor profit margins.

Unitil's revenue growth has slightly outpaced the industry average of 9.2%. Since the same quarter one year prior, revenues rose by 11.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

Unitil earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, Unitil increased its bottom line by earning $1.52 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($1.55 versus $1.52).

Net operating cash flow has increased to $7.30 million or 10.60% when compared to the same quarter last year. Despite an increase in cash flow, Unitil's cash flow growth rate is still lower than the industry average growth rate of 25.03%.

Unitil's share price has plunged 28.56% over the past year. The probable causes include at least two: First, the broader market, which declined even more sharply than Unitil's. And second, the company reported weak earnings per share results. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, Unitil is still more expensive than most of the other companies in its industry.

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.