Rating Change #9
Tower Group Inc (TWGP) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.
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Highlights from the ratings report include:
- TWGP's revenue growth trails the industry average of 21.6%. Since the same quarter one year prior, revenues slightly increased by 4.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.46, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.
- TOWER GROUP INC 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TOWER GROUP INC swung to a loss, reporting -$0.74 versus $1.46 in the prior year. This year, the market expects an improvement in earnings ($2.77 versus -$0.74).
- 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 Insurance industry. The net income has significantly decreased by 306.2% when compared to the same quarter one year ago, falling from $25.29 million to -$52.14 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Insurance industry and the overall market, TOWER GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.