NEW YORK ( TheStreet) -- Sanderson Farms (Nasdaq: SAFM) 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, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and poor profit margins.
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- The revenue growth greatly exceeded the industry average of 24.3%. Since the same quarter one year prior, revenues rose by 24.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food Products industry. The net income increased by 246.6% when compared to the same quarter one year prior, rising from -$16.28 million to $23.87 million.
- SANDERSON FARMS INC reported significant earnings per share improvement in the most recent quarter compared to 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, SANDERSON FARMS INC swung to a loss, reporting -$5.74 versus $6.00 in the prior year. This year, the market expects an improvement in earnings ($3.59 versus -$5.74).
- SAFM has underperformed the S&P 500 Index, declining 13.35% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- 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, SANDERSON FARMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
-- Written by a member of TheStreet Ratings Staff