TSC Ratings' Updates: Eldorado

We've upgraded Deutsche Telekom(DT Quote) from hold to buy, driven by its compelling growth in net income, expanding profit margins, impressive record of earnings per share growth and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Net income increased by 137.3% to $1,040.5 million since the same quarter a year ago, significantly outperforming the S&P 500 and the diversified telecommunication services industry. The company's gross profit margin of 66% is rather high, having increased since the same period last year, but its net profit margin of 6% trails the industry average. On the basis of return on equity, which has improved slightly compared with the same quarter last year, Deutsche Telekom underperforms the industry and the S&P 500.

Revenue fell by 30.2% since the same quarter last year, but EPS increased significantly. Deutsche Telekom 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 19 cents vs. 97 cents in the prior year. This year, the market expects an improvement in earnings to 89 cents.

We've upgraded Eldorado Gold(EGO Quote) from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.