Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK ( TheStreet) -- Pepco Holdings (NYSE: POM) has been downgraded by TheStreet Ratings from buy to hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and generally higher debt management risk.
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- Net operating cash flow has slightly increased to $111.00 million or 9.90% when compared to the same quarter last year. Despite an increase in cash flow, PEPCO HOLDINGS INC's average is still marginally south of the industry average growth rate of 17.98%.
- POM, with its decline in revenue, underperformed when compared the industry average of 16.1%. Since the same quarter one year prior, revenues slightly dropped by 1.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- PEPCO HOLDINGS INC's earnings per share declined by 30.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, PEPCO HOLDINGS INC increased its bottom line by earning $1.17 versus $1.14 in the prior year. For the next year, the market is expecting a contraction of 4.3% in earnings ($1.12 versus $1.17).
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Electric Utilities industry and the overall market, PEPCO HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Electric Utilities industry. The net income has significantly decreased by 32.3% when compared to the same quarter one year ago, falling from $62.00 million to $42.00 million.