TSC Ratings' Updates: Apache

The following ratings changes were generated on Friday, Feb. 20.

We've downgraded independent energy company Apache(APA Quote) from buy to hold. Strengths include its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find a decline in the stock price during the past year, deteriorating net income and disappointing return on equity.

Apache's 0.3 debt-to-equity ratio is very low but is still higher than the industry average. Its gross profit margin of 63.1% is rather high, though it has decreased from the same period last year. The net profit margin of -156.9% significantly underperformed the industry average. Return on equity has greatly decreased since the year-ago quarter, a signal of major weakness within the corporation and an underperformance of both the industry average and the S&P 500.

Shares are down 38.5% over the past year, in part reflecting the decline of the broader market, and EPS are down 375.9%. But don't assume that the stock can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, Apache is still more expensive than most of the other companies in its industry.

We've downgraded online travel company Expedia(EXPE Quote) from hold to sell, driven by its deteriorating net income, disappointing return on equity, generally weak debt management, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Net income decreased to -$2,760 million in the most recent quarter from $65.36 million in the year-ago quarter, significantly underperforming the S&P 500 and the internet and catalog retail industry. ROE also greatly decreased, a signal of major weakness. Expedia's debt-to-equity ratio is somewhat low overall but high when compared with the industry average. The quick ratio is low and demonstrates weak liquidity. EPS have declined by 4,463.6% compared with the year-ago quarter, but the consensus estimate suggests that the company's two-year trend of declining EPS should reverse in the coming year.