Rating Change #5
Calpine Corp (CPN) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.
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Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Independent Power Producers & Energy Traders industry. The net income increased by 130.0% when compared to the same quarter one year prior, rising from $190.00 million to $437.00 million.
- 44.90% is the gross profit margin for CALPINE CORP which we consider to be strong. It has increased significantly from the same period last year. Along with this, the net profit margin of 21.90% significantly outperformed against the industry average.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market on the basis of return on equity, CALPINE CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The debt-to-equity ratio is very high at 2.63 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, CPN's quick ratio is somewhat strong at 1.30, demonstrating the ability to handle short-term liquidity needs.
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