NEW YORK ( TheStreet) -- Eagle Rock Energy Partners (Nasdaq: EROC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including poor profit margins and generally poor debt management. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 25.1%. Since the same quarter one year prior, revenues rose by 43.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- EAGLE ROCK ENERGY PARTNRS LP reported significant earnings per share improvement 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 two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, EAGLE ROCK ENERGY PARTNRS LP turned its bottom line around by earning $0.37 versus -$0.53 in the prior year. This year, the market expects an improvement in earnings ($0.58 versus $0.37).
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- EROC's debt-to-equity ratio of 0.77 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that EROC's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.58 is low and demonstrates weak liquidity.
- The gross profit margin for EAGLE ROCK ENERGY PARTNRS LP is rather low; currently it is at 17.90%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, EROC's net profit margin of -11.60% significantly underperformed when compared to the industry average.
-- Written by a member of TheStreet Ratings Staff