The following ratings changes were generated on Monday, Oct. 27.
from buy to hold. Strengths include the company's strong revenue growth across business segments in recent quarters, annual increases in net income, expanding margins and a healthy liquidity position. Downside risks include a decrease in demand for the products and services offered by the company or its third-party sellers, and a failure to drive revenue from new products and services.
Amazon's second-quarter revenue increased 34.9% to $2.89 billion, driven by a strong performance from both the North American and international regions. North American revenue jumped 38.4% to $1.60 billion, fueled by higher demand for products within the electronics and other general merchandise business segment. International revenue surged 30.9% to $1.29 billion, supported by strong revenue growth within the media segment. Gross profit margin for the quarter improved 55 basis points to 26.40%, from 25.85% in the year-ago period, while operating profit margin expanded 82 basis points to 4.05%, from 3.23%. Consequently, net income more than tripled to $78 million, or 19 cents per share, from $22 million, or 5 cents per share. Cash and cash equivalents for the quarter ended June 2007 were $1.67 billion, an increase of 17.3% over $1.42 billion a year ago. Meanwhile, the interest coverage ratio improved to 6.16 from 4.06, despite an increase in the interest expense. During the quarter, Amazon launched a number of new products and services.
Amazon's revenue depends on demand for company products and services or on demand for third-party sellers. A softening of demand, due to changes in consumer preferences or a weakening in the U.S. or global economies may result in decreased revenue and a failure to successfully launch new products and services.
Cabot Oil & Gas
from buy to hold. Strengths include its robust revenue growth, increase in net income and expanding profit margins. Weakness include a decline in the stock price during the past year and disappointing return on equity.
Cabot's revenue growth of 41.5% since the same quarter one year ago has slightly outpaced the industry average of 34.3%, boosting EPS. Its gross profit margin is currently very high at 73.4%, having increased from the same quarter last year. Net profit margin of 22% significantly outperformed the industry average. The company's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying very successful management of debt levels. The quick ratio, however, which is currently 0.63, displays a potential problem in covering short-term cash needs.
Return on equity has greatly decreased since the same quarter one year prior, a signal of major weakness within the corporation. On the basis of ROE, Cabot underperforms the oil, gas and consumable fuels industry but outperforms the
. Shares are off 31.25% on the year, but the decline was not as bad as the broader market plunge during that same time frame. One factor that may have helped cushion the fall somewhat was the improvement in the company's earnings per share for the last quarter as compared with the same quarter a year earlier. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
Helmerich & Payne
, which engages in the contract drilling of oil and gas wells in the U.S. and internationally, from buy to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. Weaknesses include a decline in the stock price during the past year and disappointing return on equity.
Revenue rose by 24% since the same quarter a year ago, slightly outpacing the industry average of 18% and boosting EPS. The company's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying very successful management of debt levels. H&P also has a quick ratio of 1.82, which demonstrates the ability of the company to cover short-term liquidity needs.
ROE has slightly decreased from the same quarter one year prior, implying a minor weakness in the organization. On the basis of ROE, H&P underperforms the industry average but outperforms the S&P 500. Shares are down 12.01%, reflecting, in part, the market's overall decline, but we don't see anything in the company's numbers to help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
Universal Health Services
from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. Weaknesses include poor profit margins, a decline in the stock price during the past year and disappointing return on equity.
Revenue growth of 8.5% came in higher than the industry average of 5.1%, boosting EPS. The debt-to-equity ratio is somewhat low, currently at 0.68, and is less than that of the industry average, implying a relatively successful effort in the management of debt levels. The company also maintains an adequate quick ratio of 1.41, which illustrates its ability to avoid short-term cash problems. Net operating cash flow has increased to $66.79 million, or 11.31% when compared with the same quarter last year. Universal Health Services' cash flow growth rate, however, is still lower than the industry average growth rate of 30.04%.
The company's current return on equity has slightly decreased from the same quarter one year prior, implying a minor weakness in the organization. On the basis of ROE, UHS underperformed the industry average and outperformed the S&P 500. The company's gross profit margin is currently extremely low at 12.6%, having decreased from the same quarter last year, but the net profit margin of 4.2% is above the industry average.
Valley National Bancorp
from buy to hold. Strengths include ts expanding profit margins over time. Weaknesses include a decline in the stock price during the past year, feeble growth in the company's earnings per share and deteriorating net income.
VNB's gross profit margin of 48% is strong, but it has decreased from the same period last year. Net profit margin of 2.3% trails the industry average. Since the same quarter one year ago, revenue fell by 21.9%, and EPS declined. Current ROE is lower than it was in the same quarter last year, a clear sign of weakness. On the basis of ROE VNB outperformed the industry average but underperformed the S&P 500.
VNB has experienced a steep decline in EPS in the most recent quarter compared with the same quarter a year ago. EPS have declined over the last two years, a trend we anticipate should continue. During the past fiscal year, VNB reported lower earnings of $1.21 vs. $1.27 in the prior year, and for the next year, the market expects a contraction of 18.9% to 98 cents. Net income has significantly decreased by 90.1%, from $36.45 million to $3.60 million, underperforming the S&P 500 and the commercial banks industry.
Other ratings changes include
( TLAB) and
, both downgraded from hold to sell.
All ratings changes generated on Oct. 27 are listed below.
Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates. While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows. 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 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.