NEW YORK (TheStreet) -- Headwaters (NYSE:HW) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally poor debt management, disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 13.6%. Since the same quarter one year prior, revenues rose by 16.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 84.04% and other important driving factors, this stock has surged by 36.85% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- HEADWATERS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HEADWATERS INC reported poor results of -$2.20 versus -$0.82 in the prior year. This year, the market expects an improvement in earnings (-$0.38 versus -$2.20).
- The debt-to-equity ratio is very high at 37.32 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, HW maintains a poor quick ratio of 0.97, which illustrates the inability to avoid short-term cash problems.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Construction Materials industry and the overall market, HEADWATERS INC's return on equity significantly trails that of both the industry average and the S&P 500.
-- 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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