Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK (TheStreet) -- ADT Corporation (NYSE:ADT) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk.
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- Net operating cash flow has decreased to $335.00 million or 18.09% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Even though the current debt-to-equity ratio is 1.36, it is still below the industry average, suggesting that this level of debt is acceptable within the Commercial Services & Supplies industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.26 is very low and demonstrates very weak liquidity.
- Looking at the price performance of ADT's shares over the past 12 months, there is not much good news to report: the stock is down 32.55%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Commercial Services & Supplies industry average, but is less than that of the S&P 500. The net income has significantly decreased by 26.7% when compared to the same quarter one year ago, falling from $105.00 million to $77.00 million.
- ADT CORP's earnings per share declined by 11.4% 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, ADT CORP increased its bottom line by earning $1.88 versus $0.40 in the prior year. This year, the market expects an improvement in earnings ($1.91 versus $1.88).
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