NEW YORK ( TheStreet) -- CEC Entertainment (NYSE: CEC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally poor debt management and weak operating cash flow.
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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. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, CEC ENTERTAINMENT INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- CEC ENTERTAINMENT INC's earnings per share declined by 32.4% 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, CEC ENTERTAINMENT INC increased its bottom line by earning $2.82 versus $2.49 in the prior year. This year, the market expects an improvement in earnings ($2.90 versus $2.82).
- The debt-to-equity ratio is very high at 2.84 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.43, which clearly demonstrates the inability to cover short-term cash needs.
- 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 Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 37.3% when compared to the same quarter one year ago, falling from $6.50 million to $4.08 million.
-- Written by a member of TheStreet Ratings Staff