NEW YORK (TheStreet) -- Babcock & Wilcox (BWC) was gaining 6.5% to $29.50 Wednesday after announcing it is evaluating the separation of its businesses.

The company said it is looking into separating its power generation business, and government and nuclear operations business, into two separate publicly trading companies. Babcock & Wilcox's board of directors said its goal is to determine if a separation "creates the opportunity for enhanced shareholder value and business focus."

Babcock & Wilcox retained JPMorgan (JPM) as its financial advisor for a potential separation, and Wachtell, Lipton, Rosen & Katz and Jones Day as legal advisors to help with the process.

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TheStreet Ratings team rates BABCOCK & WILCOX CO as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate BABCOCK & WILCOX CO (BWC) 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 largely solid financial position with reasonable debt levels by most measures, notable return on equity and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • BWC'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 1.01, which illustrates the ability to avoid short-term cash problems.
  • 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. When compared to other companies in the Electrical Equipment industry and the overall market, BABCOCK & WILCOX CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • BWC, with its decline in revenue, underperformed when compared the industry average of 6.5%. Since the same quarter one year prior, revenues fell by 22.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • BABCOCK & WILCOX CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, BABCOCK & WILCOX CO increased its bottom line by earning $3.08 versus $1.91 in the prior year. For the next year, the market is expecting a contraction of 43.2% in earnings ($1.75 versus $3.08).
  • You can view the full analysis from the report here: BWC Ratings Report

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