NEW YORK ( TheStreet) -- Lufkin Industries (Nasdaq: LUFK) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value. Highlights from the ratings report include:
- LUFKIN INDUSTRIES INC has improved earnings per share by 11.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, LUFKIN INDUSTRIES INC increased its bottom line by earning $1.44 versus $0.76 in the prior year. This year, the market expects an improvement in earnings ($2.39 versus $1.44).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Energy Equipment & Services industry average, but is less than that of the S&P 500. The net income increased by 14.2% when compared to the same quarter one year prior, going from $12.64 million to $14.43 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 39.8%. Since the same quarter one year prior, revenues rose by 34.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- LUFK's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, LUFK has a quick ratio of 1.77, which demonstrates the ability of the company to cover short-term liquidity needs.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 40.77% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.