The following ratings changes were generated on Friday, Dec. 19.
We've upgraded property and casual insurance company
( CPHL) from sell to hold. Strengths include its robust revenue growth, good cash flow from operations and notable return on equity. However, we also find weaknesses including deteriorating net income and poor profit margins.
Revenue leaped by 62.8% since the same quarter last year, outperforming the industry average of 6.6% growth, though earnings per share declined. Net operating cash flow has increased to $51.24 million, or 42% compared with the same quarter last year, vastly surpassing the industry average cash flow growth rate of -12.26%.
CastlePoint underperforms both the
and the industry average on the basis of return on equity. The company's gross profit margin is extremely low at 2.6%, having decreased significantly from the same period last year, and its net profit margin of -10.7% is below the industry average. Net income decreased from $10.5 million to -$13.15 million, underperforming the S&P 500 and the insurance industry.
, which manufactures and distributes corn flour, tortillas, wheat flour and related products, from hold to sell, driven by its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Net income decreased from $72.2 million to -$164.4 million compared with the same quarter a year ago, significantly underperforming the food products industry as well as the S&P 500. Return on equity has also greatly decreased from the same quarter one year prior, a signal of major weakness. Gruma's gross profit margin is currently lower than what is desirable at 33.10%, having decreased from the same quarter the previous year, and its the net profit margin of -19.10% is significantly below that of the industry average.
Gruma experienced a steep decline of 293.3% in EPS in the most recent quarter compared with the same quarter a year ago. During the past fiscal year, it increased its bottom line by earning $1.71 vs. $1.18 in the prior year, but for the next year, the market is expecting a contraction of 117.1% in earnings to -20 cents. Shares are down 82.2% on the 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 owns and leases retail motor fuel and convenience store properties and petroleum distribution terminals, from hold to buy, driven by its largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations, notable return on equity and relatively strong performance when compared with the S&P 500.
The debt-to-equity ratio is somewhat low at 0.64 and is less than that of the industry average, implying a relatively successful effort in the management of debt levels. Getty's gross profit margin is rather high at 57%, having increased from the same quarter the previous year, and the net profit margin of 51% significantly outperformed the industry average. Net operating cash flow has slightly increased to $12 million, or 2.66% compared with the same quarter last year, but Getty's cash flow growth rate is still lower than the industry average growth rate of 13.39%.
Revnue dropped by 4.1% since the same quarter a year ago but still managed to outperform the industry average, and EPS remained stable. Net income decreased by 18.3%, to $10.5 million, outperforming the S&P 500 and the REITs industry average.
We've downgraded restaurant company
from hold to sell, driven by its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and weak operating cash flow.
Luby's experienced a steep decline in EPS in the most recent quarter compared with the same quarter a year ago, and during the past fiscal year, it reported lower earnings of 8 cents vs. 41 cents in the prior year. For the next year, the market is expecting a further contraction in earnings to -16 cents. Net income decreased by 145.9%, to -2.2 million, underperforming the S&P 500 and the hotels, restaurants and leisure industry. Current return on equity is lower than its ROE from the same quarter one year prior, a clear sign of weakness.
Luby's gross profit margin is currently extremely low, coming in at 10%, having decreased from the same quarter the previous year, its net profit margin of -3.20% is significantly below the industry average. Net operating cash flow has significantly decreased to $1.65 million, or 75.84% compared with the same quarter last year.
We've downgraded food and grocery retailer
from buy to hold. Strengths include its revenue growth, reasonable valuation levels and good cash flow from operations. However, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.
Revenue increased by 6.9% since the same quarter last year but underperformed the 18.4% industry average, and EPS declined. Weis Markets has no debt to speak of, but its quick ratio of 0.8 is somewhat weak and could be cause for future problems. The company's current return on equity has slightly decreased from the same quarter one year prior, implying a minor weakness in the organization. Weis Markets' gross profit margin is currently lower than what is desirable, at 27.9%, having decreased from the same quarter the previous year, and its net profit margin of 1.3% trails that of the industry average.
All ratings changes generated on Dec. 19 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.