TSC Ratings' Updates: Allegiant

The following ratings changes were generated on Tuesday, Jan. 20.

We've downgraded Allegiant Travel(ALGT Quote) from buy to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, we also find weaknesses including premium valuation, poor profit margins and weak operating cash flow.

Revenue rose by 35.4% since the year-ago quarter, outperforming the industry average of 7.9%, but earnings per share declined. Allegiants' 0.3 debt-to-equity ratio is low and below the industry average, implying successful management of debt levels, and its 1.3 quick ratio illustrates its ability to avoid short-term cash problems. Allegiant's gross profit margin of 18.7% is rather low, having decreased from the same quarter last year, but its net profit margin of 4.2% is above the industry average.

We've downgraded Home Bancshares(HOMB Quote) from buy to hold. Strengths include it solid stock price performance. At the same time, we also find weaknesses including deteriorating net income, disappointing return on equity and premium valuation.

Revenue fell by 14.7% since the year-ago quarter, and EPS decreased sharply. The company has reported a trend of declining EPS over the past few years, but the consensus estimate suggests that this trend should reverse in the coming year. Home Bancshares' gross profit margin of 9% is extremely low, having decreased from the same period last year, and its net profit margin of 25.8% is significantly below the industry average.

Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.