NEW YORK ( TheStreet) -- Tam (NYSE: TAM) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally weak debt management, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 Airlines industry. The net income has significantly decreased by 183.5% when compared to the same quarter one year ago, falling from $424.30 million to -$354.23 million.
- The debt-to-equity ratio is very high at 4.59 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, TAM maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Airlines industry and the overall market, TAM SA's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $31.80 million or 87.53% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The share price of TAM SA has not done very well: it is down 19.23% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.