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NEW YORK (TheStreet) --Horsehead (ZINC)  stock is down by 16.11% to $2.50 in late morning trading on Friday, after a rating downgrade to "perform" from "outperform" at Oppenheimer this morning. The firm lowered its rating on the stock because of declining production and lower zinc prices.

As zinc prices decrease with lower China demand, zinc producer Horsehead must increase its production levels to become profitable, Oppenheimer said in a note. 

Production at the company's Mooresboro plant decreased to 3,000 tons in September from 3,200 tons in August, missing the firm's estimates of roughly 4,500 tons, according to Oppenheimer.

Although operational issues were partly to blame, further work is necessary. Improvements at the plant could cost $40 million to $50 million, which Horsehead has said it can fund with debt, but its convertible secured debt is trading at an unaffordable yield, Oppenheimer noted. 

"Overall, another disappointing month with an unclear path to break-even production and an increased need to raise capital in a weak capital markets environment," Oppenheimer analysts said in a note. 

Horsehead, based in Pittsburgh, produces zinc and nickel-based products sold primarily to customers throughout the U.S. and Canada.

Separately, TheStreet Ratings team rates HORSEHEAD HOLDING CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

We rate HORSEHEAD HOLDING CORP (ZINC) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, HORSEHEAD HOLDING CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Net operating cash flow has significantly decreased to -$27.39 million or 241.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The gross profit margin for HORSEHEAD HOLDING CORP is currently extremely low, coming in at 11.92%. Regardless of ZINC's low profit margin, it has managed to increase from the same period last year.
  • ZINC's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 75.22%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, 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.
  • HORSEHEAD HOLDING CORP has improved earnings per share by 40.0% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, HORSEHEAD HOLDING CORP reported poor results of -$0.31 versus -$0.30 in the prior year. For the next year, the market is expecting a contraction of 135.5% in earnings (-$0.73 versus -$0.31).
  • You can view the full analysis from the report here: ZINC