Rating Change #8
has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, growth in earnings per share and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
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Highlights from the ratings report include:
- CVD's revenue growth has slightly outpaced the industry average of 1.7%. Since the same quarter one year prior, revenues slightly increased by 3.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CVD's debt-to-equity ratio is very low at 0.27 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $70.83 million or 35.62% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 11.23%.
- COVANCE INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, COVANCE INC increased its bottom line by earning $2.17 versus $1.05 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus $2.17).
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.32% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
Covance Inc., a drug development services company, provides various early-stage and late-stage product development services primarily to the pharmaceutical, biotechnology, and medical device industries worldwide. The company has a P/E ratio of 40.7, above the S&P 500 P/E ratio of 17.7. Covance has a market cap of $3.14 billion and is part of the health care sector and health services industry. Shares are up 25.5% year to date as of the close of trading on Wednesday.
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