NEW YORK ( TheStreet) -- Meritor (NYSE: MTOR) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins.
- ACTIVE STOCK TRADERS: Check out TheStreet's special offer for Real Money, headlined by Jim Cramer, now!
- MERITOR INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, MERITOR INC turned its bottom line around by earning $0.67 versus -$0.02 in the prior year. This year, the market expects an improvement in earnings ($1.17 versus $0.67).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Machinery industry. The net income increased by 188.2% when compared to the same quarter one year prior, rising from $17.00 million to $49.00 million.
- MTOR, with its decline in revenue, underperformed when compared the industry average of 8.6%. Since the same quarter one year prior, revenues fell by 12.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for MERITOR INC is currently extremely low, coming in at 13.20%. Regardless of MTOR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 4.40% trails the industry average.
- MTOR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 68.57%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. 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.
-- Written by a member of TheStreet Ratings Staff