Why Wells Fargo Upgraded Kronos Worldwide (KRO)

NEW YORK (TheStreet) -- Wells Fargo upgraded Kronos Worldwide (KRO) to "market perform" on Monday. Analysts justified the ratings revision as a valuation call as the stock is down 23% over the past couple of weeks.  

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TheStreet Ratings team rates KRONOS WORLDWIDE INC as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate KRONOS WORLDWIDE INC (KRO) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

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

  • KRO's debt-to-equity ratio is very low at 0.24 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 1.34, which illustrates the ability to avoid short-term cash problems.
  • KRO, with its decline in revenue, underperformed when compared the industry average of 13.6%. Since the same quarter one year prior, revenues fell by 11.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of KRONOS WORLDWIDE INC has not done very well: it is down 12.98% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The gross profit margin for KRONOS WORLDWIDE INC is currently extremely low, coming in at 14.27%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.13% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $75.90 million or 39.03% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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