The following ratings changes were generated on Monday, March 9.
We've downgraded Alaska Communications Systems Group (ALSK), which provides integrated communications services in Alaska, from hold to sell. This rating is driven by the company's deteriorating net income, generally weak debt management, disappointing return on equity, poor profit margins and weak operating cash flow.
Net income decreased to -$18.9 million in the most recent quarter from $120.4 million in the same quarter last year, significantly underperforming the S&P 500 and the diversified telecommunication services industry. The 44.2 debt-to-equity ratio is very high and above the industry average, implying very poor management of debt levels within the company. The 0.7 quick ratio illustrates the company's inability to avoid short-term cash problems. Return on equity decreased greatly since the same quarter last year, a signal of major weakness within the corporation. The 26.4% gross profit margin is lower than desirable, having decreased from the same quarter last year, and the -19.4% net profit margin is significantly below the industry average. Net operating cash flow decline 3.1% to $26.4 million compared with the year-ago quarter.
We've downgraded Dominion Resources (D), which provides electricity, natural gas and related services, from buy to hold. Strengths include the company's increase in net income, revenue growth and growth in earnings per share. However, we also find weaknesses including poor profit margins and generally poor debt management.Net income increase by 16.5% compared with the year-ago quarter, from $303 million to $353 million. Revenue rose by 13%, trailing the industry average of 38.6% growth. Earnings per share improved by 15.4%, and we feel the company is poised for EPS growth in the coming year despite reporting somewhat volatile earnings lately. Dominion's 1.7 debt-to-equity ratio is below the industry average, suggesting that this level of debt is acceptable within the multi-utilities industry. The 0.3 quick ratio is very low, demonstrating weak liquidity. Dominion's gross profit margin of 25.5% is lower than desirable, having decreased from the same quarter the previous year. The 8.5% net profit margin, however, is above the industry average.
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