TSC Ratings' Updates:HealthSpring
The following ratings changes were generated on Tuesday, Feb. 3.
We've downgraded Cytec Industries (CYT), a specialty chemicals and materials company, from hold to sell, driven by its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.
Net income decreased significantly, by 837%, compared with the year-ago quarter, underperforming both the S&P 500 and the chemicals industry. Return on equity also greatly decreased, a signal of major weakness within the corporation. Net operating cash flow fell 22.7% to $58.2 million. Cytec's 21.3% gross profit margin is rather low, having decreased from the year-ago quarter, and its net profit margin of -50.2% is significantly below the industry average.
Shares tumbled 67.6% over the year, underperforming the S&P 500, and EPS are down 861.9% compared with the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.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.
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