Layne Christensen Downgraded to Strong Sell - Analyst Blog

On Jun 19, Zacks Investment Research downgraded Layne Christensen Co. LAYN to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Layne Christensen's shares have been on a downtrend since the company reported dismal first-quarter 2015 results on Jun 16. Since then its shares have plummeted around 13.6% to close at $12.87 on Jun 18. Further, the company had delivered negative earnings surprises in all of the last four quarters with an average miss of 199.7%.

Layne Christensen had reported a net loss of $27.7 million or $1.41 per share, substantially missing the Zacks Consensus Estimate of a loss of 35 cents by 302.9%. In the prior-year quarter, the company had reported a net loss of $23.8 million or $1.24 per share. Revenues had also declined 15.5% year over year to $191.2 million while falling short of the Zacks Consensus Estimate of $206.0 million.

The company's business was impacted by dismal performance of the Heavy Civil and Mineral Services, which completely offset the growth in Inliner, Geoconstruction and Energy Services. The Water Resources business also delivered a weaker-than-expected performance in the quarter.

Moreover, Layne Christensen's weak cash and balance sheet position does not facilitate enough flexibility to make innovative investments and strategic acquisitions. The company ended the quarter with cash and equivalents of $21.2 million, down from $35.0 million as on Jan 31, 2014. It‘s total long-term debt widened to $147.9 million compared with $108.3 million in the last quarter.

The company is taking initiatives to reduce its operating expenses by $12 – $20 million per year. It is also taking measures to minimize its exposure to under-performing businesses. However, it is a matter to time to see if these steps bear fruit.

Other Stocks to Consider

Investors interested in this sector could also consider better-ranked stocks including AO Smith Corp. AOS, ITT Corp. ITT and Quanta Services, Inc. PWR. All of these carry a Zacks Rank #2 (Buy).