Will This Downgrade Hurt G&K Services (GK) on Thursday?

NEW YORK (TheStreet) -- G&K Services (GK) has been downgraded to "neutral" from "outperform," Robert Baird said Thursday. The firm said profitability will likely fall in-line with peers over the coming quarters. 

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Separately, TheStreet Ratings team rates G&K SERVICES INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate G&K SERVICES INC (GK) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

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

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 32.51% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GK should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • G&K SERVICES INC has improved earnings per share by 22.7% 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, G&K SERVICES INC increased its bottom line by earning $2.35 versus $1.29 in the prior year. This year, the market expects an improvement in earnings ($2.89 versus $2.35).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.9%. Since the same quarter one year prior, revenues slightly increased by 3.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.14, which illustrates the ability to avoid short-term cash problems.

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