Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.
This list is based on data from the close of the previous trading session. Today, fast-growth stocks are in the spotlight. These are stocks of companies that are projected to increase revenue and profit by at least 12% in the coming year and rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.
In addition, the stocks must be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. Please note that definitions of revenue vary by industry, and this screen does not make adjustments for acquisitions, which can materially affect posted results. Likewise, earnings-per-share growth may be affected by accounting charges, share repurchases and other one-time items.
Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.
First up is
Diamond Offshore Drilling
, which engages in the contract drilling of oil and gas wells. The company's fleet of 30 submersibles enables it to offer a range of services in various markets worldwide, including the deep-water, harsh environment and conventional semisubmersible markets. Diamond also owns 13 jack-up rigs, which are mobile, self-elevating drilling platforms equipped with legs that are lowered to the ocean floor until a foundation can be built to support the platform. Finally, Diamond also has one drillship, the
, located offshore Brazil.
We have rated Diamond a buy since June 2005, on the basis of various strengths displayed by the company. Boosted by solid sales growth from its Contract Drilling business segment, Diamond's revenue surged 29.3% year-over-year to $666.7 million in the first quarter of fiscal 2008. First-quarter earnings rose 29.7%, fueled by a rise in daily rates for the company's deepwater rigs. Net income for the quarter increased to $290.63 million, or $2.09 a share, from $224.15 million, or $1.64 a share, in the first quarter of fiscal 2007.
In keeping with its policy of considering the payment of special cash dividends on a quarterly basis, the board of directors recently declared a special cash dividend of $1.25 a share of common stock in addition to a regular cash dividend of 12.5 cents a share of common stock. Both dividends are payable in June 2008. Finally, Diamond's debt-to-equity ratio is very low at 0.17, implying that debt levels have been successfully managed.
While lower than a year ago, Diamond's gross profit margin continued to remain relatively high at 61.8%. However, the company's net profit margin of 37% significantly outperformed against the industry. Furthermore, the company has demonstrated a pattern of positive earnings per share growth over the past two years, and we feel that this trend could continue.
Although the company may harbor some minor weaknesses, we feel that they are unlikely to offset the company's strengths. Instead, we feel that the slowdown in the U.S. economy and weak jobs data pose larger risks as they may put pressure on the demand for oil and gas. This could in turn disturb activities related to exploration and production, affecting the number of rigs that are operational in the market and potentially affecting Diamond's future profitability.
Next up is
, which engages in the development, manufacture and sale of precision-engineered flow equipments through three divisions: Flowserve Pump, Flow Control and Flow Solutions. The company operates worldwide in more than 56 countries, with 43% of its revenue coming from North America.
We have rated Flowserve a buy since January 2007 based on several positive investment measures, such as the company's increasing revenue and net income. Additionally, the company reported record results in various areas including earnings per share (EPS), sales and bookings for the first quarter of fiscal 2008. Flowserve's revenue rose 23.6% year-over-year in the first quarter, largely due to strong sales in the oil and gas markets. The company also reported that fully diluted earnings per share rose 159%, from 59 cents a year ago to $1.53. Furthermore, net income increased 162%, rising from $33.61 million to $88.07 million. Additionally, bookings were up 31% for the quarter.
Management raised its fiscal 2008 EPS forecast to a target range of $5.90 to $6.20 from its previous estimate of $5.10 to $5.40. The company is encouraged by its first-quarter results and its continued strength in key markets, and remains confident in its ability to successfully carry out its operational excellence initiatives to increase its performance in the current global environment. Bear in mind, however, that the recent surge in commodity costs is a challenge to the machinery industry as a whole and could therefore affect Flowserve's results in the future.
Moving on, let's look at
( XTO), which acquires, develops, exploits and explores oil and gas properties. The company also produces, processes, markets and transports oil and natural gas. XTO's proved reserves are located primarily in various regions of Alaska, Arkansas, Colorado, Kansas, New Mexico, Oklahoma, Texas and Wyoming. These fields are generally long-lived, with well-established production histories.
We have rated XTO Energy a buy since November 2001. We view the company's revenue growth, stock performance and increase in net income as strengths. For the first quarter of fiscal 2008, the company reported that its net income rose 21.4% to $465 million from $383 million a year ago, while its revenue rose 43.2% year-over-year. This growth appears to have trickled down to the company's bottom line, as earnings per share improved from 82 cents a year ago to 92 cents. Finally, net operating cash flow increased 12.5% to $957 million. Moreover, on June 10, the company disclosed a deal to buy Hunt Petroleum in a purchase that should boost XTO's oil and gas output by nearly a third.
Management feels that the first-quarter results reflect a strong start to fiscal 2008, which they hope will be another record year for the company. While the stock's sharp appreciation over the last year has made it a premium compared to some of its peers, we feel the price levels are justified by the strengths of the company. Bear in mind, however, that the company operates in an industry that is highly volatile, and the cyclical nature of oil and gas prices could impact XTO's future results.
, which designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related products. These products include filtration emissions solutions, fuel systems, controls and air-handling systems. The company, headquartered in Columbus, Ind., serves customers in more than 160 countries through a network of 550 company-owned and independent distributor facilities and more than 5,000 dealer locations.
Cummins has been rated a buy since March 2004. Despite a somewhat disappointing return on equity of 21.8% in the most recent quarter, we are impressed by the company's revenue growth, stock price performance and improved earnings per share. For the first quarter of fiscal 2008, Cummins' revenue rose 23.3% year-over-year. This appears to have helped boost the company's earnings per share (EPS), which improved 36.6% compared to the prior year's quarter. EPS rose to 97 cents in the first quarter from 71 cents in the same quarter of fiscal 2007.
Net income rose 32.9%, from $143 million a year ago to $190 million. Cummins also reported strong performances across all business segments, particularly from international markets, which accounted for 57% of the company's first-quarter sales and helped offset rising commodity prices and sluggishness in some U.S. consumer-related markets.
Management feels that Cummins' strong first-quarter results offer proof that the company's diversification and growth strategies are working to help counteract the current economic uncertainty in the U.S. Management affirmed its previous fiscal 2008 forecasts of at least 12% revenue growth over fiscal 2007. Additionally, the company restated its plans to invest between $550 million and $600 million in capital expenditures globally. However, the company's future results could be negatively impacted by rising commodity costs and general economic conditions.
And finally, we have
-- a publicly owned engineering, procurement, construction and maintenance services company headquartered in Texas. With offices in more than 25 countries across six continents, the company's clients hail from a wide variety of industries, including chemicals, petrochemicals, government, health care, life sciences and telecommunications.
Our buy rating for Fluor has not changed since January 2004. The company's strengths include its strong revenue growth, solid stock price performance, and net income growth. The company reported that all of its business segments posted substantial growth over last year in the first quarter of fiscal 2008, with the exception of the government segment.
Revenue rose 32% year over year to $4.8 billion, up from $3.6 billion in the first quarter of fiscal 2007. This growth appears to have helped boost earnings per share, which improved from 94 cents in the first quarter of fiscal 2007 to $1.50 in the most recent quarter. Net income increased by 63.1% in the first quarter to $138.01 million. Powered by strong earnings growth of 59.6% and other important driving factors, this stock has surged more than 75% over the past year.
Looking ahead, management increased its full-year guidance due to substantial new awards, a solid list of major prospects and robust earnings momentum from the first quarter. The company now anticipates full-year 2008 EPS in the range of $6.25 to $6.55, up from the previous estimate of $5.10 to $5.40. A recently announced two-for-one stock split, to be completed at a later date, was not taken into account in this guidance.
We feel that the company's strengths outweigh its relatively low profit margins and should allow the stock to continue to move higher despite having already enjoyed a very nice gain over the past year. Bear in mind, however, that actual performance could be affected by the cyclical nature of the markets that Fluor serves, along with any unexpected delays or difficulties in the execution of contracts.
Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.
However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.
For those reasons, we believe that a rating alone cannot tell the whole story and that it should be part of an investor's overall research.
This article was written by a staff member of TheStreet.com Ratings.