BOSTON ( TheStreet) -- Yesterday I identified Sears, Jamba Juice, Domino's Pizza and two other companies that investors ought to avoid because they're too distressed. That's because a measure known as the Altman-Z Score shows they may be on the brink of failure.Today I offer five other companies, including Monster Worldwide, Level 3 Communications and Calpine. The Altman-Z Score was developed by Edward Altman to help identify companies that may fall into bankruptcy. The quantitative scoring system combines five financial ratios using a company's balance sheet to categorize companies into several bankruptcy-probability buckets. The five metrics of the Altman Z Score include working capital/total assets, retained earnings/total assets, EBIT/total assets, market value of equity/book value of total liabilities and sales/assets. A company with an Altman Z score of less than 1.81 is considered to be in a "distress zone" and, therefore, according to Altman, is at a higher risk for bankruptcy versus its competitors. Altman also developed a metric called the Double Prime Z Score specifically for non-manufacturing firms, a slight variation on the aforementioned model. It identifies distress levels as companies with a score less than 1.1. TheStreet Ratings analyzed the Altman Z Scores of all U.S.-traded stocks and searched for notable companies with scores below the distress level. Below are five of them. Monster Worldwide: ( MWW) TheStreet Ratings Recommendation: HOLD Altman Z Score:0.89 Buy MWW Ratings Report Monster Worldwide, which runs the popular jobs website Monster.com, has come under competitive pressures as the company has failed to innovate and is now losing market share at the hands of LinkedIn. Despite the poor peformance, the company has said it would consider any offers for the company so there is potential that it could be acquired in the near term. Here's a snippet from our report: "Sales and net income have dropped, underperforming the average competitor within its industry. "Monster has weak liquidity. Currently, the quick ratio is 0.85, which shows a lack of ability to cover short-term cash needs. "During the same period, stockholders' equity ("net worth") has decreased by 7.57% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future."
Orbitz Worldwide: ( OWW) TheStreet Ratings Recommendation: HOLD Altman Z Score: -8.81 Buy OWW Ratings Report Although Orbitz's share price has increased by nearly 46% in the past year, there are still risks with an investment in this travel provider. Orbitz is facing intense competitive pressures as the company's flagship site-Orbitz.com remains unprofitable -- as other online-travel providers such as Priceline.com and Kayak have thrived even in the face of a struggling economy here and overseas. Here's a snippet from our report: "The company has grown sales and net income during the past quarter when compared with the same quarter a year ago, however, it was unable to keep up with the growth of the average competitor within its industry. "Orbitz has very weak liquidity. Currently, the quick ratio is 0.50, which clearly shows a lack of ability to cover short-term cash needs. "The debt-to-equity ratio is very high at 2.91 and currently higher than the industry average, implying that there is very poor management of debt levels within the company." Level 3 Communications: ( LVLT) TheStreet Ratings Recommendation: HOLD Altman Z Score: -3.80 Buy LVLT Ratings Report Unprofitable and saddled with debt, Level 3 Communications looks like a risky proposition by any means of analysis. As of last check, LVLT held nearly $8 billion in net debt and is still unprofitable. The company reported a net loss of 29 cents per share in the most recent quarter. Here's a snippet from our report: "Level 3 Communications has weak liquidity. Currently, the quick ratio is 0.86, which shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having weak liquidity to begin with. This would indicate deteriorating cash flow. "The debt-to-equity ratio is very high at 6.93 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. "Compared to other companies in the Diversified Telecommunication Services industry and the overall market, LVLT's return on equity significantly trails that of both the industry average and the S&P 500." Sprint: ( S)
TheStreet Ratings Recommendation: SELL Altman Z Score: -4.08 Buy S Ratings Report Sprint has rallied significantly in the past few weeks, yet the company is still less than desirable. It has $15 billion in net debt. While a turnaround is in progress at Sprint, it remains to be seen whether the company can continue with its forward momentum and steal any sort of market share from cell phone giants AT&T and Verizon. Here's a snippet from our report: "Sprint's gross profit margin for the second quarter of fiscal 2012 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased, representing a decrease to the bottom line. "Sprint has average liquidity. Currently, the quick ratio is 1.37, which shows that, technically, this company has the ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. "At the same time, stockholders' equity ("net worth") has significantly decreased by 30.75% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future." Calpine: ( CPN) TheStreet Ratings Recommendation: SELL Altman Z Score:-0.32 Buy CPN Ratings Report Calpine, an independent power producer that generates electricity and sells it into wholesale power markets, has rallied 17% in the past year, mostly due to the drop in natural gas prices and expectations that this would benefit Calpine. Unfortunately, the stock looks pricey here, trading at 76 times 2012 earnings estimates. Here's a snippet from our report: "The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally weak debt management, weak operating cash flow and feeble growth in its earnings per share. "The debt-to-equity ratio is very high at 2.91 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. "To add to this, CPN has a quick ratio of 0.57, this demonstrates the lack of ability of the company to cover short-term liquidity needs."