NEW YORK ( TheStreet) -- ITT Educational Services (NYSE: ESI) 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 and expanding profit margins. 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:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Consumer Services industry and the overall market, ITT EDUCATIONAL SERVICES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for ITT EDUCATIONAL SERVICES INC is rather high; currently it is at 65.10%. Regardless of ESI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ESI's net profit margin of 20.40% compares favorably to the industry average.
- 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 Diversified Consumer Services industry. The net income has decreased by 17.7% when compared to the same quarter one year ago, dropping from $96.04 million to $79.00 million.
- Currently the debt-to-equity ratio of 1.73 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, ESI maintains a poor quick ratio of 0.97, which illustrates the inability to avoid short-term cash problems.