NEW YORK ( TheStreet) -- Diamond Offshore Drilling (NYSE: DO) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 4.21, which clearly demonstrates the ability to cover short-term cash needs.
- 43.80% is the gross profit margin for DIAMOND OFFSHRE DRILLING INC which we consider to be strong. Regardless of DO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DO's net profit margin of 25.20% significantly outperformed against the industry.
- DO, with its decline in revenue, underperformed when compared the industry average of 15.2%. Since the same quarter one year prior, revenues fell by 11.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market, DIAMOND OFFSHRE DRILLING INC's return on equity exceeds that of both the industry average and the S&P 500.
- DIAMOND OFFSHRE DRILLING INC's earnings per share declined by 21.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DIAMOND OFFSHRE DRILLING INC increased its bottom line by earning $6.93 versus $6.87 in the prior year. For the next year, the market is expecting a contraction of 39.7% in earnings ($4.18 versus $6.93).