Telecom Argentina SA Stock Downgraded (TEO)

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) -- Telecom Argentina (NYSE: TEO) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, feeble growth in the company's earnings per share and a generally disappointing performance in the stock itself.

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Highlights from the ratings report include:
  • TEO's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • 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. In comparison to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELECOM ARGENTINA STET-FRNCE has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
  • TELECOM ARGENTINA STET-FRNCE reported flat earnings per share in the most recent quarter. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, TELECOM ARGENTINA STET-FRNCE reported lower earnings of $2.52 versus $2.78 in the prior year. For the next year, the market is expecting a contraction of 8.5% in earnings ($2.31 versus $2.52).
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Diversified Telecommunication Services industry average. The net income has decreased by 3.6% when compared to the same quarter one year ago, dropping from $114.17 million to $110.00 million.

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