NEW YORK ( TheStreet) -- Convergys Corporation (NYSE: CVG) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the IT Services industry and the overall market, CONVERGYS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $67.20 million or 5.88% 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.
- CVG has underperformed the S&P 500 Index, declining 7.80% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- 37.20% is the gross profit margin for CONVERGYS CORP which we consider to be strong. Regardless of CVG'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 5.70% trails the industry average.
- CONVERGYS CORP reported significant earnings per share improvement 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, CONVERGYS CORP swung to a loss, reporting -$0.63 versus $0.68 in the prior year. This year, the market expects an improvement in earnings ($0.99 versus -$0.63).