NEW YORK ( TheStreet) -- Telephones of Mexico (Nasdaq: TFONY) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its expanding profit margins, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- 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 Diversified Telecommunication Services industry and the overall market, TELMEX-TELEFONOS DE MEXICO's return on equity significantly exceeds that of both the industry average and the S&P 500.
- TFONY, with its decline in revenue, underperformed when compared the industry average of 13.5%. Since the same quarter one year prior, revenues slightly dropped by 0.5%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- TELMEX-TELEFONOS DE MEXICO's earnings per share declined by 17.1% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, TELMEX-TELEFONOS DE MEXICO reported lower earnings of $1.35 versus $1.70 in the prior year. This year, the market expects an improvement in earnings ($1.38 versus $1.35).
- TFONY's share price has surged by 26.47% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, although almost any stock can fall in a broad market decline, TFONY should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The gross profit margin for TELMEX-TELEFONOS DE MEXICO is rather high; currently it is at 61.50%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.60% is above that of the industry average.