Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model NEW YORK ( TheStreet) -- CPFL Energy (NYSE: CPL) has been downgraded by TheStreet Ratings from buy to hold. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and generally higher debt management risk.
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- CPL, with its decline in revenue, underperformed when compared the industry average of 0.8%. Since the same quarter one year prior, revenues fell by 21.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Electric Utilities industry and the overall market, CPFL ENERGIA SA's return on equity exceeds that of both the industry average and the S&P 500.
- CPFL ENERGIA SA' earnings per share from the most recent quarter came in slightly below the year earlier quarter. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, CPFL ENERGIA SA reported lower earnings of $1.49 versus $1.92 in the prior year. For the next year, the market is expecting a contraction of 45.6% in earnings ($0.81 versus $1.49).
- The gross profit margin for CPFL ENERGIA SA is rather low; currently it is at 18.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.10% trails that of the industry average.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CPL has underperformed the S&P 500 Index, declining 9.75% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
-- Written by a member of TheStreet Ratings Staff