NEW YORK ( TheStreet) -- Basic Sanitation Company of the State of Sa (NYSE: SBS) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has declined marginally to $315.15 million or 3.85% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, CIA SANEAMENTO BASICO ESTADO has marginally lower results.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Water Utilities industry. The net income has significantly decreased by 33.1% when compared to the same quarter one year ago, falling from $167.81 million to $112.23 million.
- 38.60% is the gross profit margin for CIA SANEAMENTO BASICO ESTADO which we consider to be strong. Regardless of SBS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.00% trails the industry average.
- The debt-to-equity ratio is somewhat low, currently at 0.86, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.10, which illustrates the ability to avoid short-term cash problems.
- Despite its growing revenue, the company underperformed as compared with the industry average of 24.6%. Since the same quarter one year prior, revenues rose by 16.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.