The following ratings changes were generated on Friday, Dec. 5. We've downgraded Alliant Techsystems ( ATK), which supplies aerospace and defense products to the U.S. government agencies and its prime contractors and subcontractors, from buy to hold. Strengths include its revenue growth, growth in earnings per share and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including generally poor debt management, a decline in the stock price during the past year and weak operating cash flow. Revenue increased by 6.1% since the same quarter a year ago, outpacing the industry average of 1.9% and boosting EPS, which improved by 29.9% in the most recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years, a trend we feel should continue, suggesting that the performance of the business is improving. During the past fiscal year, Alliant increased its bottom line by earning $6.31 vs. $5.34 in the prior year. This year, the market expects an improvement in earnings to $7.55. Currently the debt-to-equity ratio of 1.71 is quite high overall and when compared with the industry average, suggesting that the current management of debt levels should be re-evaluated. Alliant also maintains a poor quick ratio of 0.93, which illustrates the inability to avoid short-term cash problems. Shares are down 32.3% on the year, though the decline of the broader market during the same time frame was worse. 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.
We've downgraded Covidien ( COV), which engages in the development, manufacture and sale of health care products for use in clinical and home settings worldwide, from hold to sell, driven by its weak operating cash flow. Net operating cash flow has decreased to $512 million, or 18.85% 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. Despite currently having a low debt-to-equity ratio of 0.39, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. The company's quick ratio of 1.44 is sturdy. Covidien's gross profit margin for is rather high at 58.7%, having increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 15.90% trails the industry average. On the basis of return on equity, Covidien has underperformed the health care equipment and supplies industry but outperformed the S&P 500. Shares are down 9.8%, reflecting, in part, the market's overall decline, investors ignoring the increase in its earnings per share. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time. We've downgraded diversified energy company National Fuel Gas ( NFG) from buy to hold. Strengths include its robust revenue growth, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and a decline in the stock price during the past year.
Revenue increased by 31.7% since the same quarter last year, compared with the industry average of 33.1% growth. The 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. NFG's ROE exceeds that of both the industry average and the S&P 500. The debt-to-equity ratio is somewhat low, currently at 0.69, and is less than that of the industry average, implying a relatively successful effort in the management of debt levels. The quick ratio, however, which is currently 0.68, displays a potential problem in covering short-term cash needs. NFG's gross profit margin of 30.3% is currently lower than what is desirable, having decreased from the same quarter the previous year, but the net profit margin of 10.9% is above that of the industry average. The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the gas utilities industry. The net income has significantly decreased by 72.6% when compared with the same quarter one year ago, falling from $157.7 million to $43.3 million. We've downgraded electronics producer Panasonic ( PC) from hold to sell, driven by its weak operating cash flow, generally disappointing historical performance in the stock itself, poor profit margins and feeble growth in its earnings per share. Net operating cash flow has significantly decreased to $130 million, or 87.70% when compared with the same quarter last year. In addition, compared with the industry average, the firm's growth rate is much lower. The gross profit margin is currently lower than what is desirable, at 32.1%, but it has managed to increase from the same period last year. Panasonic's 2.5% net profit margin, however, compares favorably with the industry average. EPS declined by 10.7% in the most recent quarter compared with the same quarter a year ago. This company has reported somewhat volatile earnings recently, and we feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, it increased its bottom line by earning $1.33 vs. 84 cents in the prior year. For the next year, the market is expecting a contraction of 15.8% in earnings to $1.12. Net income decreased by 11.6% compared with the same quarter last year, to $525 million.
Shares are down 46.2% on the year, probably driven by the decline of similar magnitude in the overall market, as well as by lower earnings per share compared to the same quarter one year earlier. 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. We've downgraded home products retailer Williams-Sonoma ( WSM) from hold to sell, driven by its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself. Williams-Sonoma experienced a steep decline in earnings per share of 140% in the most recent quarter in comparison with its performance from the same quarter a year ago. Earnings per share have declined over the last two years, and we anticipate that this should continue in the coming year. During the past fiscal year, the company reported lower earnings of $1.79 vs. $1.81 in the prior year. For the next year, the market is expecting a contraction of 87.7% in earnings to 22 cents. Net income has significantly decreased by 140.6% compared with the same quarter a year ago, underperforming the specialty retail industry and the S&P 500. Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. On the basis of ROE, Williams-Sonoma has underperformed the industry but outperformed the S&P 500. Revenue fell by 16% since the same quarter a year ago, underperforming the industry average. Shares are down 71.7% on the year, which is worse than the decline in the S&P 500. 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. Other ratings changes include Kenneth Cole Productions ( KCP) and Supreme Industries ( STS), both downgraded from hold to sell. All ratings changes generated on Dec. 5 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.
|ADS||Alliance Data Systems||HOLD||Downgrade||BUY|
|FCBN||First Citizens Bancorp||SELL||Downgrade||HOLD|
|NFG||National Fuel Gas||HOLD||Downgrade||BUY|
|WEL||Boots & Coots||HOLD||Downgrade||BUY|
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