Telefonica SA Stock Downgraded (TEF)

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) -- Telefonica (NYSE: TEF) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, notable return on equity and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins.

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Highlights from the ratings report include:
  • 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELEFONICA SA has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Although TEF's debt-to-equity ratio of 2.61 is very high, it is currently less than that of the industry average. Along with the unfavorable debt-to-equity ratio, TEF maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
  • The gross profit margin for TELEFONICA SA is currently lower than what is desirable, coming in at 30.12%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.65% trails that of the industry average.

Telefonica, S.A. provides fixed and mobile communication services primarily in Europe and Latin America. The company offers mobile voice, mobile data and Internet, wholesale, corporate, roaming, fixed wireless, and trunking and paging services. Telefonica has a market cap of $75.14 billion and is part of the technology sector and telecommunications industry. Shares are up 0.4% year to date as of the close of trading on Friday.

You can view the full Telefonica Ratings Report or get investment ideas from our investment research center.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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