TSC Ratings' Updates: Encana

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 Wednesday, May 6.

We've initiated coverage on Chimera Investment(CIM Quote) at sell, driven by its poor debt management on most measures.

The 2.4 debt-to-equity ratio is above the industry average. Revenue fell 0.7% since the year-ago quarter, and EPS increased. The market expects an improvement in earnings this year. ROE trails that of the industry average.

Shares have tumbled 72.8% over the past year, underperforming the S&P 500.

We've upgraded Encana(ECA Quote) from hold to buy, driven by its impressive record of earnings per share growth, compelling growth in net income, notable return on equity, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

EPS improved in the most recent quarter compared with the year-ago quarter, and the company has demonstrated a two-year pattern of positive EPS growth. Net income increased by 934.4% compared with the same quarter last year, from $93 million to $962 million. ROE also increased. The 60.4% gross profit margin increased over the year-ago quarter, and net profit margin of 20.9% outperformed the industry average. Net operating cash flow rose 4.2% to $1.8 billion compared with the year-ago quarter.

We've upgraded iRobot(IRBT Quote) from sell to hold. Strengths include its increase in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, we also find weaknesses including premium valuation, poor profit margins and a decline in the stock price during the past year.