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) -- Foster Wheeler (Nasdaq: FWLT) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures, notable return on equity, impressive record of earnings per share growth and attractive valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins.
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- FWLT's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.12, which illustrates the ability to avoid short-term cash problems.
- 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 Construction & Engineering industry and the overall market, FOSTER WHEELER AG's return on equity exceeds that of both the industry average and the S&P 500.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- FOSTER WHEELER AG reported significant earnings per share improvement 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, FOSTER WHEELER AG reported lower earnings of $1.35 versus $1.69 in the prior year. This year, the market expects an improvement in earnings ($1.62 versus $1.35).
- The revenue fell significantly faster than the industry average of 11.5%. Since the same quarter one year prior, revenues fell by 29.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
-- Written by a member of TheStreet Ratings Staff