Graham Corporation Stock Downgraded (GHM)

NEW YORK (TheStreet) -- Graham Corporation (AMEX:GHM) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and poor profit margins.

Highlights from the ratings report include:

• GHM's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, GHM has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.
• Net operating cash flow has significantly increased by 71.04% to -$1.31 million when compared to the same quarter last year. In addition, GRAHAM CORP has also vastly surpassed the industry average cash flow growth rate of -65.72%.
• GRAHAM CORP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, GRAHAM CORP increased its bottom line by earning $1.05 versus $0.60 in the prior year. This year, the market expects earnings to be in line with last year ($1.05 versus $1.05).
• The share price of GRAHAM CORP has not done very well: it is down 14.86% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
• The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Machinery industry. The net income has significantly decreased by 84.0% when compared to the same quarter one year ago, falling from $2.68 million to $0.43 million.

Graham Corporation, together with its subsidiaries, engages in the design, manufacture, and sale of vacuum and heat transfer equipment worldwide. The company has a P/E ratio of 17.1, equal to the average industrial industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Graham has a market cap of $179.8 million and is part of the industrial goods sector and industrial industry. Shares are down 21.3% year to date as of the close of trading on Friday.

You can view the full Graham Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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