TSC Ratings' Updates: Men's Wearhouse
TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.
The following ratings changes were generated on Thursday, April 2.
We've upgraded Men's Wearhouse (MW), a specialty retailer of men's suits, from sell to hold. Strengths include the company's reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.
The company has a debt-to-equity ratio or 0.1, though it is higher than the industry average. It has a quick ratio of 0.6, which might imply a potential problem in covering short-term cash needs. We consider the 43% gross profit margin to be strong, though it has decreased from the year-ago quarter. The 0.3% net profit trails the industry average. Net income decreased 89.9% compared with the year-ago quarter, to $1.5 million. Return on equity also decreased, which could signal weakness within the corporation.
We've upgraded wireless communications carrier MetroPCS (PCS) from sell to hold. Strengths include the company's robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, we also find weaknesses including generally poor debt management and weak operating cash flow.
Revenue rose by 22.4% since the same quarter last year. Earnings per share also rose, and we feel that the company's yearlong trend of positive EPS should continue. Return on equity is below that of the S&P 500 and the industry average. Net operating fell to -$80.4 million compared with the year-ago quarter. The company's debt-to-equity ratio of 1.5 is above the industry average, and its quick ratio of 1 might illustrate difficulty avoiding short-term cash problems.
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