Stantec Inc. Stock Downgraded (STN)

NEW YORK ( TheStreet) -- Stantec (NYSE: STN) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 12.0%. 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.
  • Net operating cash flow has increased to $62.30 million or 11.38% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -9.82%.
  • The gross profit margin for STANTEC INC is rather high; currently it is at 55.10%. Regardless of STN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, STN's net profit margin of -18.90% significantly underperformed when compared to the industry average.
  • 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 Professional Services industry. The net income has significantly decreased by 362.5% when compared to the same quarter one year ago, falling from $25.06 million to -$65.78 million.
  • 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 Professional Services industry and the overall market on the basis of return on equity, STANTEC INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
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Stantec Inc. The company has a P/E ratio of 107.9, above the average diversified services industry P/E ratio of 11.5 and above the S&P 500 P/E ratio of 17.7. Stantec has a market cap of $1.21 billion and is part of the services sector and diversified services industry. Shares are up 8.4% year to date as of the close of trading on Wednesday.

You can view the full Stantec Ratings Report or get investment ideas from our investment research center.
-- Written by a member of TheStreet Ratings Staff
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