The following ratings changes were generated on Thursday, Oct. 30.
We've upgraded biopharmaceutical company
( CEPH) from hold to buy, driven by its compelling growth in net income, revenue growth, notable return on equity, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins.
Net income rose 136.5% when compared with the same quarter a year ago, from -$306.76 million to $112.04 million, outperforming the
and the biotechnology industry. Revenue rose by 13.7%, boosting earnings per share but underperforming the industry average of 17.3%. Return on equity greatly increased over the same quarter last year, a signal of significant strength within the corporation, outperforming the industry and the overall market. Net operating cash flow increased to $162.13 million, or 31.27% when compared with the same quarter last year, vastly surpassing the industry average cash flow growth rate of -96.59%.
, which sells weight management, nutritional supplement, energy and fitness, and personal care products worldwide, from buy to hold. Strengths include its robust revenue growth, notable return on equity and expanding profitmargins. Weaknesses include generally poor debt management, weak operating cash flow and a generally disappointing performance in the stock itself.
Revenue for the quarter rose 20.7% year over year, slightly outpacing the industry average of 16.6% and appearing to have helped boost EPS, which rose significantly over the year-ago quarter. The company has demonstrated a pattern of positive earnings per share growthover the past two years that we think will continue. During the past fiscal year, Herbalife increased its bottom line by earning $2.64 vs. $1.94 in the prior year. This year, the market expects further improvement in earnings to $3.70.
Net operating cash flow has decreased to $59.07 million, or 27.68% when compared with the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Herbalife's quick ratio of 0.60 demonstrates the lack of ability of the company to cover short-term liquidity needs.
, which provides communications test and measurement solutions, and optical products to telecommunications service providers, cable operators, and network equipment manufacturers, from hold to sell, driven by its deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself.
Net income has significantly decreased by 137.7% when compared to the same quarter one year ago, falling from -$6.90 million to -$16.40 million, significantly underperforming the S&P 500 and the communications equipment industry. Return on equity has slightly decreased from the same quarter one year prior, implying a minor weakness in the organization and underperforming both the industry average and the S&P 500.
Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year. It has tumbled by 60.43%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 166.66% compared with the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor, and the sharp decline last year could be considered a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
, which engages in the production of gold from its properties in the U.S., Australia, Peru, Indonesia, Ghana, Canada, Bolivia, New Zealand and Mexico, from hold to sell, driven by its unimpressive growth in net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Net income has significantly decreased by 50.6% when compared with the same quarterone year ago, falling from $397.00 million to $196.00 million, underperforming the S&P 500 and the metals and mining industry. Net operating cash flow has significantly decreased to $199.00 million, or 64.20%. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
Shares tumbled by 45.67% over the year, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 46.57% compared with the year-earlier quarter. During past fiscal year, Newmont swung to a loss, reporting -$2.13 versus $1.26 in the prior year. This year, the market expects an improvement in earnings to $2.34. 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.
, which provides a line of products and services, including coal and natural gas, furnace and foundry coke, slag fiber, mortgage financing, and home construction, from sell to hold. Strengths include its compelling growth in net income, revenue growth and expanding profit margins. However, as a counter to these strengths, we find that the company has not been very careful in the management of its balance sheet.
Net income increased by 125.8% when compared to the same quarter one year prior, rising from $24.36 million to $55.00 million, exceeding the net income growth of the S&P 500 and the oil, gas & consumable fuels industry. Revenue growth of 24.3% trails the industry average of 35.8%, but it appears to have helped boost the earnings per share. Return on equity has greatly decreased from the same quarter one year prior, a signal of major weakness within the corporation, outperforming the industry and the overall market. The debt-to-equity ratio is very high at 3.20 and currently higher than the industry average, implying very poor management of debt levels within the company.
Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
Other ratings changes include
, both downgraded from hold to sell.
All ratings changes generated on Oct. 30 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.