For more than two years, TheStreet Ratings quantitative stock model has maintained a Buy recommendation on CA Inc. (CA)
Since the rating was last upgraded to Buy from Hold on December 21, 2015, CA's stock has climbed steadily, rising as much as 43% before Thursday's spike on news that Broadcom intended to buy the company pushed the gain to over 69%.
With the announcement of the pending acquisition for $18.7 billion in cash, the restricted upside potential for the stock no longer warrants a Buy recommendation. Therefore, TheStreet Ratings downgraded CA to Hold today with a grade of C.
Previously, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings had this to say about the recommendation:
Prior to the announced acquisition, we rated CA INC as a Buy with a ratings score of A-. This was based on the convergence of positive investment measures, which helped this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 13.0%. Since the same quarter one year prior, revenues slightly increased by 7.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.50, 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 1.26, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $548.00 million or 30.78% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.42%.
- The gross profit margin for CA INC is currently very high, coming in at 85.78%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 19.11% trails the industry average.
- You can view the full analysis from the report here: CA
-- Reported by Kevin Baker in Palm Beach Gardens, FL