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.
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