NEW YORK ( TheStreet) -- Potlatch (Nasdaq: PCH) has been upgraded by TheStreet Ratings from hold to buy. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
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- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, POTLATCH CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- PCH, with its decline in revenue, underperformed when compared the industry average of 17.9%. Since the same quarter one year prior, revenues slightly dropped by 8.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- After a year of stock price fluctuations, the net result is that PCH's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- POTLATCH CORP's earnings per share declined by 31.6% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. Despite the past stability of earnings, the consensus estimate anticipates a weakening in earnings. During the past fiscal year, POTLATCH CORP's EPS of $0.99 remained unchanged from the prior years' EPS of $0.99. For the next year, the market is expecting a contraction of 29.3% in earnings ($0.70 versus $0.99).
- The debt-to-equity ratio is very high at 2.58 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Even though the debt-to-equity ratio is weak, PCH's quick ratio is somewhat strong at 1.16, demonstrating the ability to handle short-term liquidity needs.
-- Written by a member of TheStreet Ratings Staff