Below are three stocks that have underperformed the broader market recently. They are also in considerable financial distress, as represented by poor Altman Z-Scores, which means they are in danger of going bankrupt within two years.
Nonetheless, their ability to generate profit appears to be good, as indicated by GuruFocus profitability ratings of at least 6 out of 10. They also hold positive recommendation ratings on Wall Street. Sell side analysts believe that these companies have the potential to continue operating and generating profits despite their poor financials, though investors should keep an eye out in case things start to get worse.
Comcast Corp
The first stock to have a look at is Comcast Corp (CMCSA, Financial), a Philadelphia-based global operator of media and technology.
The stock has an Altman Z-Score of 1.71, indicating financial distress. Furthermore, the interest coverage ratio of 5.37 indicates that the company can keep on paying its interest expenses for the time being, although the balance sheet appears to be highly leveraged compared to peers. In fact, the debt-equity ratio is 1.15, ranking worse than 81.75% of 833 companies that operate in the media–diversified industry.
GuruFocus has assigned a rating of 8 out of 10 to the company's profitability, driven by an operating margin of 16.89% (versus an industry median of 2.09%) and a net margin of 10.17% (versus the industry median of -1.11%).
Wall Street sell side analysts predict that the share price will bounce back within a year, rising up to the average target price of $61.18, which will reflect a 12.5% upside from Friday's closing price. Analysts have issued 12 strong buy recommendation ratings, 18 buy recommendation ratings and one hold recommendation rating for the stock.
The stock rose by 42.34% over the past year for a market capitalization of $249.88 billion, a 52-week range of $34.17 to $58.59 and a forward dividend yield of 1.84%.
The company will pay a quarterly dividend of 25 cents per common share on April 28.
Crown Castle International Corp
The second stock to have a look at is Crown Castle International Corp (CCI, Financial), a Houston-based provider of infrastructure for shared communications.
The stock has an Altman Z-Score of 1.58, which indicates financial distress. The interest coverage ratio of 3.05 indicates that the company should be able to continue paying its interest expenses for the time being, but investors should also take into consideration the fact that the balance sheet is currently carrying a lot of debt, as indicated by a debt-equity ratio of 2.9, which ranks worse than 92.10% of 696 companies operating in the real estate investment trust industry.
GuruFocus has assigned a rating of 8 out of 10 for the company's profitability, driven by a three-year Ebitda growth rate of 11.1% (versus the industry median of -1.35%) and a three-year EPS without NRI growth rate of 43.2% (versus the industry median of -3.3%).
The share price ($187.18 as of April 23) should move higher over the next 52 weeks, as sell side analysts on Wall Street have issued a median recommendation rating of overweight for this stock. The average target price is $187.80 per share.
The stock price has increased by 14.3% over the past year for a market capitalization of $80.86 billion, a 52-week range of $146.15 to $188.13 and a trailing 12-month dividend yield of 2.7% (based on a quarterly cash dividend per share of $1.33, with the most recent one paid on March 31).
Sempra Energy
The third stock to have a look at is Sempra Energy (SRE, Financial), a San Diego, California-based distributor of energy sourced by electricity, natural gas, photovoltaic and other sources in Southern California, Texas and Mexico.
The stock has an Altman Z-Score of 1.14, indicating financial distress. The interest coverage ratio of 2.62 indicates that the company should just barely be able to keep on paying its interest expenses for the time being, even though its balance sheet is quite leveraged. It would take more than five years before the total debt could be completely extinguished with yearly Ebitda.
The operating activities seem to be profitable, as GuruFocus has assigned the company a profitability rating of 6 out of 10. The score is driven by a net profit margin of 34.59% (versus the industry median of 7.69%) and a three-year EPS without NRI growth rate of 74.4% (versus the industry median of 4.6%).
Wall Street forecasts that the share price ($137.07 as of April 23) will bounce back within a year, reaching the average target price of $148.61 per share, which represents an 8.4% upside from Friday's closing price. Sell side analysts have issued five strong buys, three buys and three hold recommendation ratings for this stock.
The stock has grown by 6.42% over the past year for a market capitalization of $41.49 billion, a 52-week range of $112.16 to $140.3 and a trailing 12-month dividend yield of 3.09% (based on a quarterly cash dividend per share of $1.10, with the last one paid on April 15).
Disclosure: I have no positions in any security mentioned in this article.
Read more here:
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