The following three stocks have underperformed the broader market recently. They are also in considerable financial distress, as represented by poor Altman Z-Scores, meaning they are in danger of going bankrupt within the next two years.
Nonetheless, their operating activities are still generating healthy profits, as indicated by GuruFocus profitability ratings of at least 6 out of 10. They also hold positive recommendation ratings on Wall Street. Analysts are convinced that these companies have the potential to improve their conditions, though investors should keep an eye out in case things start to get worse.
GlaxoSmithKline PLC
The first stock that makes the cut is GlaxoSmithKline PLC GSK, a British pharmaceutical giant.
The stock has an Altman Z-Score of 1.49, indicating financial distress. The interest coverage ratio of 5.37, however, indicates that the company can keep on paying its interest expenses for the time being.
GuruFocus has assigned a rating of 8 out of 10 to the company's profitability, driven by a return on capital of 37.6% as of the December 2020 quarter (versus the industry median of 6.53%).
The share price ($36.67 as of March 26) declined by 2.47% over the past year, as you can see in the below chart.
Wall Street forecasts that the share price will rebound strongly within a year, as the average target price of $46.57 per share reflects a 27% upside from Friday's closing price. Sell-side analysts have issued one strong buy and three hold recommendation ratings for the stock.
The market capitalization is $92.24 billion, the 52-week range is $33.26 to $43.18 and the forward dividend yield is 5.75%. The company will pay a quarterly dividend of 62.8 cents per common share on April 8.
Huaneng Power International Inc
The second stock that makes the cut is Huaneng Power International Inc HNP, a Beijing, China-based independent generator of electricity selling power to regional grid operators in China, Singapore and Pakistan.
The stock has an Altman Z-Score of 0.5, which indicates financial distress. The interest coverage ratio of 1.39 indicates that the company should just barely be able to continue paying its interest expenses for the time being.
GuruFocus has assigned a rating of 6 out of 10 for the company's profitability, driven by a three-year revenue growth rate of 14% (versus the industry median of negative 3.6%) and a return on capital ratio of 5.32% (the industry median is 6.77%).
The share price ($13.97 as of March 26) has declined by nearly 4% over the past year, as you can see in the below chart.
Wall Street sell-side analysts forecast that the share price will improve within 52 weeks, rising up to a $17 average target, which reflects a 21.7% upside from Friday's closing price of $13.97. The median recommendation rating is overweight for this stock, suggesting that the share price is also forecasted to outperform the market.
The market capitalization is $5.48 billion, the 52-week range is $12.79 to $19.64 and the dividend yield is 5.55% (based on an annual cash dividend per share of 77.5 cents, which was paid on Sept. 10, 2020).
Easterly Government Properties Inc
The third stock that makes the cut is Easterly Government Properties Inc DEA, a Washington, District of Columbia-based real estate investment trust company focusing on the acquisition of Class A commercial properties to lease to the U.S. Government.
The stock has an Altman Z-Score of 1.1, indicating financial distress. The interest coverage ratio of 1.55 indicates that the company should be able to just barely keep on paying its interest expenses for the time being.
The business still appears profitable, as the return on capital of 156.61% (as of the December 2020 quarter) is largely outperforming the industry median of 77.18% and the three-year earnings per share (EPS) without non-recurring items (NRI) growth rate of 14.5% is beating the industry median of -0.4%.
The share price ($21.04 as of March 26) has decreased by 14.33 over the past year, as the below chart exhibits.
Wall Street predicts that the share price will bounce back strongly within a year up to the $26.07 average target price, which represents a 24% upside from Friday's closing price. Analysts have issued one strong buy, one buy and three hold recommendation ratings for the stock.
The market capitalization is $1.73 billion, the 52-week range is $19 to $29.69 and the dividend yield is 4.94% (based on a quarterly cash dividend per share of 26 cents which was paid on March 17).
Disclosure: I have no positions in any security mentioned in this article.
Read more here:
- A Trio of Stocks Growing Free Cash Flow Fast
- 3 Stocks with Low 12-Month and Forward PEG Ratios
- Trio of Stocks Growing Earnings Faster than Sales
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