NEW YORK ( TheStreet) -- Donegal Group (Nasdaq: DGICA) 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, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's 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 19.7%. 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.
- DGICA's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
- 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.
- 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 Insurance industry. The net income has significantly decreased by 119.2% when compared to the same quarter one year ago, falling from $4.58 million to -$0.88 million.
- 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 Insurance industry and the overall market on the basis of return on equity, DONEGAL GROUP INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
-- Written by a member of TheStreet Ratings Staff