The following ratings changes were generated on Wednesday, Jan. 7.
We've upgraded public investment firm
Compass Diversified Holdings
from sell to hold. Strengths include its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, we also find weaknesses including poor profit margins and weak operating cash flow.
Revenue leaped by 91.9%, outpacing the industry average of 8.9% growth. The company's debt-to-equity ratio, 0.3, is low and is below the industry average, implying successful management of debt levels, and its quick ratio of 1.8 demonstrates its ability to cover short-term liquidity needs. Compass Diversified's gross profit margin for is rather low at 22.5%, having decreased from the same quarter last year, and its net profit margin of 1.3% trails the industry average. Net operating cash flow has significantly decreased to $800,000, or by 94.9% when compared with the same quarter last year.
We've upgraded retail food supermarket operator
from hold to buy, driven by its attractive valuation levels, good cash flow from operations, notable return on equity and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
Net operating cash flow has slightly increased to $360.1 million, or by 6% when compared with the same quarter last year, outperforming the industry's average cash flow growth rate of -77.5%. Return on equity has improved slightly when compared to the same quarter one year prior, which can be construed as a modest strength in the organization.
Revenue fell by 31.5%, significantly faster than the industry average of 18.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. Earnings per share declined by 32.3% in the most recent quarter compared with 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, Delhaize increased its bottom line by earning $5.56 versus $5.53 in the prior year. This year, the market expects an improvement in earnings to $6.11.
We've downgraded mall-based specialty retailer
from hold to sell, driven by its disappointing return on equity and poor profit margins.
Return on equity has greatly decreased when compared withthe same quarter one year prior, a signal of major weakness within the corporation. Finish Line's gross profit margin is currently lower than what is desirable at 25.9%, having decreased from the same quarter the previous year, and its net profit margin of -3.40% trails the industry average. Revenue dropped by 4.4%. Net income growth of 44.6% to -$8.8 million, however, significantly exceed that of the
and the specialty retail industry.
EPS improved by 44.8% in the most recent quarter compared with the same quarter last year. Finish Line has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, it swung to a loss, reporting-$1.03 versus 84 cents in the prior year. This year, the market expects an improvement in earnings to 60 cents.
We've initiated coverage on
, a non-ferrous metals and mining company in India and Australia, at sell, driven by its deteriorating net income, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Net income has significantly decreased by 28.9% since the same quarter last year, from $282.36 million to $200.70 million, underperforming the metals and mining industry but outperforming the S&P 500. Sterlite's gross profit margin of 28.1% is is currently lower than what is desirable, though it has increased significantly from the same period last year. Its net profit margin of 15% is significantly lower than it was in the same period one year prior.
Sterlite's EPS declined by 31.7% in the most recent quarter compared with the same quarter last year. The company has reported a trend of declining earnings per share over the past year, but the consensus estimate suggests that this trend should reverse in the coming year. Revenue fell by 21.1% since the same quarter last year.
The stock is down 74.3% year over year, underperforming the S&P 500. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is 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 provides engineering, construction and technical services, from hold to buy, driven by its robust revenue growth, growth in earnings per share, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and relatively strong performance when compared with the S&P 500 during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.
Revenue leaped by 104.1% since the same quarter last year, greatly exceeding the industry average of 41.3% growth. Net income improved by 70%, to $65.8 million, outperforming the S&P 500 and the construction and engineering industry. It's debt-to-equity ratio of 0.3 is low, though it is higher than the industry average. The company's quick ratio of 1.4 is sturdy.
EPS are up 8.2% in the most recent quarter compared with the same quarter last year. The company has demonstrated a pattern of positive earnings per share growth over the past two years, and we feel that this trend should continue. Shares are down 22%, reflecting, in part, the market's overall decline. Although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
Other ratings changes include
, upgraded from sell to hold, and
Kulicke & Soffa
, downgraded from hold to sell.
All ratings changes generated on Jan. 7 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.