Why Morgan Stanley Downgraded Dresser-Rand (DRC)

NEW YORK (TheStreet) -- Rotating machinery specialist Dresser-Rand Group  (DRC) was downgraded to "equal-weight" by Morgan Stanley with a $57 price target on Wednesday. The investment firm said slower infrastructure spending would hurt profits.

The Olean, NY-based business was tumbling on Tuesday after announcing plans to suspend operations at a plant in Spain due to proposed government regulation. Management also lowered its 2013 guidance.

The stock closed nearly 8% lower on Tuesday to $54.10.

Must Read: Dresser-Rand Group (DRC) Takes a Hit After Announcing Suspension of Spanish Operations

Must Read: Dresser-Rand Announces Its Plan To Suspend Operations At Its Pig Manure Treatment Facilities In Spain Due To Proposed Spanish Regulation

TheStreet Ratings team rates DRESSER-RAND GROUP INC as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate DRESSER-RAND GROUP INC (DRC) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, notable return on equity and compelling growth in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DRESSER-RAND GROUP INC has improved earnings per share by 18.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DRESSER-RAND GROUP INC increased its bottom line by earning $2.35 versus $1.56 in the prior year. This year, the market expects an improvement in earnings ($3.19 versus $2.35).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.2%. Since the same quarter one year prior, revenues slightly increased by 6.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Energy Equipment & Services industry average. The net income increased by 19.9% when compared to the same quarter one year prior, going from $41.20 million to $49.40 million.
  • 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 Energy Equipment & Services industry and the overall market on the basis of return on equity, DRESSER-RAND GROUP INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for DRESSER-RAND GROUP INC is currently lower than what is desirable, coming in at 32.18%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 7.79% trails that of the industry average.

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