NEW YORK ( TheStreet) -- AOL (NYSE: AOL) has been upgraded by TheStreet Ratings from sell to hold. 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. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and weak operating cash flow. Highlights from the ratings report include:
- AOL's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.40, which illustrates the ability to avoid short-term cash problems.
- AOL INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AOL INC turned its bottom line around by earning $0.14 versus -$7.42 in the prior year. This year, the market expects an improvement in earnings ($0.33 versus $0.14).
- AOL, with its decline in revenue, underperformed when compared the industry average of 24.8%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The share price of AOL INC has not done very well: it is down 15.02% 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- 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 Internet Software & Services industry. The net income has significantly decreased by 65.5% when compared to the same quarter one year ago, falling from $66.20 million to $22.80 million.
-- Written by a member of TheStreet RatingsStaff