The following ratings changes were generated on Thursday, Jan. 29.
We've upgraded managed care organization HealthSpring (HS) from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings-per-share growth, compelling growth in net income and attractive valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins.
Net income increased by 31.3% compared with the year-ago quarter, from $22.4 million to $29.4 million. Revenue rose by 44%, outpacing the industry average of 10.4% growth and helping to boost EPS by 39.5%. The company has demonstrated a pattern of positive earnings per share growth over the past year that we feel should continue. HealthSpring's 0.4 debt-to-equity ratio is low and below the industry average, implying successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.4, which illustrates its ability to avoid short-term cash problems.
We've upgraded ITT (ITT), which engages in the design and manufacture of various engineered products and related services, from hold to buy, driven by its robust revenue growth, impressive record of earnings per share growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins.Revenue rose by 32% since the same quarter last year, greatly exceeding the industry average of 1.7% growth and boosting EPS by 20.6%. We feel that the company's two-year pattern of positive EPS growth should continue. Net operating cash flow has increased to $408.2 million, or by 18.8% when compared with the same quarter last year. ITT's debt-to-equity ratio, 0.5, is low and is below the industry average, implying successful management of debt levels, but its quick ratio of 0.7 is somewhat weak and could be cause for future problems.
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