NEW YORK ( TheStreet) -- Federal Signal (NYSE: FSS) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally weak debt management, disappointing return on equity, poor profit margins and weak operating cash flow.

Highlights from the ratings report include:
  • Net operating cash flow has decreased to $18.60 million or 16.96% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The gross profit margin for FEDERAL SIGNAL CORP is currently lower than what is desirable, coming in at 25.80%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -90.60% is significantly below that of the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Machinery industry and the overall market, FEDERAL SIGNAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio of 1.19 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, FSS maintains a poor quick ratio of 0.76, which illustrates the inability to avoid short-term cash problems.
  • 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 Machinery industry. The net income has significantly decreased by 845.4% when compared to the same quarter one year ago, falling from $22.70 million to -$169.20 million.

Federal Signal Corporation designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial, and commercial customers worldwide. The company operates in three segments: Safety and Security Systems, Fire Rescue, and Environmental Solutions. The company has a P/E ratio of 26.6, above the average automotive industry P/E ratio of 12.6 and above the S&P 500 P/E ratio of 15.9. Federal has a market cap of $330.4 million and is part of the consumer goods sector and automotive industry. Shares are down 19.1% year to date as of the close of trading on Wednesday.

You can view the full Federal Ratings Report or get investment ideas from our investment research center.
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