The following two stocks have underperformed the broader market recently. They are also in financial distress, as represented by low Altman Z-Scores, meaning that they face the potential of bankruptcy within the next two years.
Nonetheless, their ability to generate profits seems to be good, as signaled by GuruFocus profitability ratings of at least 6 out of 10. These stocks also hold positive recommendation ratings on Wall Street, which means that sell-side analysts believe that these companies have the potential to continue growing their stock prices, though investors should be on guard in case things start to get worse.
Dominion Energy Inc
The first stock to consider is Dominion Energy Inc (D, Financial), a Richmond, Virginia-based generator, transmitter and distributor of regulated electricity, natural gas as well as nonregulated renewable natural gas serving a total of 7 million customers across residential, commercial, industrial and government buildings in Virginia and in North and South Carolina.
An Altman Z-Score of 0.79 combined with a debt-to-equity ratio of 1.5 (versus the industry median of 0.88), suggests that the company is in financial distress zones and faces the potential of bankruptcy over the next two years. From the interest coverage ratio of 3.37, however, it seems that the company doesn’t have any problems paying the interest expenses on its debt for the time being.
GuruFocus has assigned a rating of 6 out of 10 to the company's profitability, driven by an operating margin of 26.87% versus the industry median of 14.44%, and by a net margin of 16.61% versus the industry median of 8.65%.
Sell-side analysts have established an average target price of $84.96 per share, which represents a nearly 11.03% upside from Tuesday’s closing price. Analysts have recommended two strong buys, two buys and 14 hold ratings for the stock.
The stock has declined by 3.9% over the past year, underperforming the S&P 500 by more than 34%, for a market capitalization of $61.87 billion, a 52-week range of $67.85 to $86.95 and a forward dividend yield of 3.3%. The company will pay a quarterly dividend of 63 cents per common share on Sept. 20.
Citrix Systems Inc
An Altman Z-Score of 2.85 combined with a debt-to-equity ratio of 12.52 (versus the industry median of 0.18), indicates that the company is in some kind of financial distress, though it is only in the grey zone in terms of bankruptcy potential. The interest coverage ratio of 5.49 tells that the company doesn’t have any problems paying the interest expenses on its debt for the time being.
GuruFocus has assigned a rating of 8 out of 10 for the company's profitability, driven by a return on equity (ROE) ratio of 288.25% versus the industry median of 4.64% and by three-year EPS without NRI growth rate of 205.7% versus the industry median of 11.2%.
The share price was $103.50 at close on Sept. 7. Analysts are expecting the price to grow 11% to a target price of $114.93 per share. They have also recommended four strong buys, five buys, 10 holds, one underperform rating and two sell ratings for the stock.
The stock has fallen by nearly 27% over the past year, underperforming the S&P 500 by nearly 57%, for a market capitalization of $12.86 billion, a 52-week range of $94.66 to $146.93 and a forward dividend yield of 1.43%. A quarterly dividend per share of 37 cents will be paid on Sept. 24.
Disclosure: I have no positions in any security mentioned in this article.