The following ratings changes were generated on Friday, March 6.
We've downgraded natural gas company El Paso (EP) from hold to sell, driven by its deteriorating net income, generally weak debt management, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
Net income decreased to -$1.7 billion from $160 million in the same quarter last year, significantly underperforming the S&P 500 and the oil, gas and consumable fuels industry. El Paso's debt-to-equity ratio of 3.5 is very high and currently above the industry average, implying very poor management of debt levels within the company. Its 0.6 quick ratio demonstrates the company's lack of ability to cover short-term liquidity needs. Return on equity has greatly decreased compared with the year-ago quarter, a signal of major weakness. Net operating cash flow decline marginally, by 7% to $319 million.
Shares have tumbled 65.7% over the year, underperforming the S&P 500, and EPS are down 1,257.1%. The stock's decline could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
We've downgraded Heinz (HNZ) from buy to hold. Strengths include its growth in earnings per share, notable return on equity and good cash flow from operations. However, as a counter to these strengths, we find that the company has not been very careful in the management of its balance sheet.EPS improved by 11.8% in the most recent quarter compared with the year-ago quarter, and we feel that the company's two-year trend of positive EPS growth should continue, suggesting improving business performance. ROE increased from the year-ago quarter, a signal of significant strength. Net operating cash flow increased by 14.9% to $292.4 million, though at a significantly lower rate than the 116.8% industry average. Heinz's debt-to-equity ratio of 4.3 is very high and currently above the industry average, suggesting very poor management of debt levels, and its 0.6 quick ratio demonstrates its lack of ability to cover short-term liquidity needs.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV