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Will This Downgrade Hurt Exelis (XLS) Today?

NEW YORK (TheStreet) -- Exelis (XLS) has been downgraded to "hold" from "buy" with a $20 price target, Jefferies said Monday. The firm said the ratings revision was a valuation call. 

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Separately, TheStreet Ratings team rates EXELIS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXELIS INC (XLS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, XLS's share price has jumped by 78.58%, exceeding the performance of the broader market during that same time frame. 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.
  • The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.35, which illustrates the ability to avoid short-term cash problems.
  • XLS, with its decline in revenue, underperformed when compared the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 9.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • 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 Aerospace & Defense industry. The net income has decreased by 8.1% when compared to the same quarter one year ago, dropping from $86.00 million to $79.00 million.
  • Net operating cash flow has decreased to $192.00 million or 33.33% 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.

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