NEW YORK ( TheStreet) -- Donegal Group (Nasdaq: DGICA) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 7.0%. Since the same quarter one year prior, revenues rose by 13.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • DGICA's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Net operating cash flow has increased to $8.58 million or 14.31% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.95%.
  • The share price of DONEGAL GROUP INC is down 5.93% when compared to where it was trading one year earlier. This reflects both (a) the trend in the overall market as well as (b) the sharp decline in the company's earnings per share. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

Donegal Group Inc., through its subsidiaries, offers personal and commercial lines of property and casualty insurance to businesses and individuals in the United States. The company has a P/E ratio of 57.2, below the average insurance industry P/E ratio of 57.5 and above the S&P 500 P/E ratio of 17.7. Donegal Group has a market cap of $285.7 million and is part of the financial sector and insurance industry. Shares are up 2% year to date as of the close of trading on Friday.

You can view the full Donegal Group Ratings Report or get investment ideas from our investment research center.
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