NEW YORK ( TheStreet) -- Ralcorp Holdings Incorporated (NYSE: RAH) 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 and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally poor debt management and disappointing return on equity. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 24.7%. Since the same quarter one year prior, revenues rose by 17.7%. 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.
- 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, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- RALCORP HOLDINGS INC's earnings per share declined by 9.4% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, RALCORP HOLDINGS INC swung to a loss, reporting -$3.44 versus $3.74 in the prior year. This year, the market expects an improvement in earnings ($3.99 versus -$3.44).
- 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 Food Products industry and the overall market, RALCORP HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for RALCORP HOLDINGS INC is currently lower than what is desirable, coming in at 27.30%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.70% trails that of the industry average.
-- Written by a member of TheStreet Ratings Staff