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) -- Forest Laboratories (NYSE: FRX) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
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- FRX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, FRX has a quick ratio of 2.16, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for FOREST LABORATORIES is currently very high, coming in at 83.00%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, FRX's net profit margin of 5.58% significantly trails the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
- FOREST LABORATORIES has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, FOREST LABORATORIES swung to a loss, reporting -$0.12 versus $3.57 in the prior year. This year, the market expects an improvement in earnings ($0.89 versus -$0.12).
- FRX, with its decline in revenue, underperformed when compared the industry average of 3.6%. Since the same quarter one year prior, revenues fell by 22.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
-- Written by a member of TheStreet Ratings Staff