NEW YORK ( TheStreet) -- AFC (Nasdaq: AFCE) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, solid stock price performance and revenue growth. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally poor debt management and weak operating cash flow. Highlights from the ratings report include:
- Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, AFC ENTERPRISES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Compared to its closing price of one year ago, AFCE's share price has jumped by 39.98%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- AFC ENTERPRISES INC's earnings per share declined by 15.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AFC ENTERPRISES INC increased its bottom line by earning $0.90 versus $0.74 in the prior year. This year, the market expects an improvement in earnings ($0.96 versus $0.90).
- 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 Hotels, Restaurants & Leisure industry. The net income has decreased by 19.1% when compared to the same quarter one year ago, dropping from $6.80 million to $5.50 million.
- The debt-to-equity ratio is very high at 72.67 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.41, which clearly demonstrates the inability to cover short-term cash needs.