Note: Our quantitative model makes stock recommendations based on GAAP figures that may differ materially from data as reported by the companies themselves. As a result, rating changes are occasionally driven by so-called nonrecurring items. As always, we urge readers to use TSC Ratings' reports in conjunction with additional information to construct their opinions on the value that should be placed on any given stock.
The following ratings changes were generated on Monday, March 23.
We've upgraded mall-based specialty retailer Aeropostale (ARO) from hold to buy, driven by the company's revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.
Revenue rose by 16.7% since the same quarter one year prior and appears to have helped boost earnings per share, which improved by 6.3% compared with the year-ago quarter. We feel that the company's two-year trend of positive EPS growth should continue in the coming year. Aeropostale has a sturdy quick ratio or 1.3. Net income increased by 5.4%, from $64.7 million to $68.2 million, compared with the same quarter last year, exceeding the net income growth of both the S&P 500 and the specialty retail industry. The company's 35.3% gross profit margin is strong, though it has decreased from the same period last year. Its net profit margin of 9.9% compares favorably with the industry average.We've downgraded Chiquita Brands International (CQB), which distribute and markets bananas and fresh produce worldwide, from hold to sell. This rating is driven by the company's deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally weak debt management. Net income fell to -$411.9 million in the most recent quarter from -$26 million in the same quarter last year, underperforming the S&P 500 and the food products industry. Return on equity also decreased, which can signal weakness within the corporation. Chiquita's 11.3% gross profit margin is low, having decreased from the year-ago quarter, and its net profit margin of -49.1% is below the industry average. Net operating cash flow decreased to -$51.8 million. The company's 1.7 debt-to-equity ratio is high overall and compared with the industry average, but its quick ratio is somewhat strong at 1.1, implying an ability to handle short-term liquidity needs.
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