On April 3, 2014, Zacks Investment Research downgraded PDI Inc. (PDII) to a Zacks Rank #5 (Strong Sell). Share price dropped almost 5% year to date.
Why the Downgrade?
PDI has been experiencing declining earnings estimates on account of a challenging CSO environment and the lack of any near-term growth catalyst.
Additionally, this commercial service provider underperformed the year-to-date Nasdaq index, which posted growth of 2.39% against PDI’s negative return of 4.99%. Furthermore, PDI delivered a negative earnings surprise of a substantial 127.27% in the last quarter.
Although the loss in the quarter narrowed from the year-ago figure, results were far from being impressive and the company still has time to get on track. The Zacks Consensus Estimate for the first quarter of 2014 is pegged at a loss of 10 cents, wider than the year-ago quarter’s loss by 171.43%. The Zacks Consensus Estimate for full-year 2014 (loss of 32 cents per share) that is expected to decline 3.23% year over year also reflects our bearish outlook on the stock.
Higher cost of services led to a decline in gross profit in 2013. Consequently, no improvement in gross profits is expected in 2014 and the number is expected to remain almost flat with the 2013 level.
Fourth-quarter 2013 top-line figures for PDI showed a mere 2% improvement year over year and management expects revenues to decline in 2014, reflecting the dearth of new opportunities in 2013.
PDI’s cash position is also weak and thus we remain skeptical about the company’s ability to undertake significant growth initiatives in the near term. Depreciated assets and equity may also weaken the capital position and raise risks on healthy capital deployment going ahead.
All these negatives have pulled down the Zacks Consensus Estimate for 2014 by 88% over the last 30 days to a loss of 32 cents. Meanwhile, the same for 2015 plunged to a loss of 11 cents, compared to an earnings estimate of 14 cents per share over the same period.
Stocks to Consider
Some better-ranked stocks in the business service sector include JTH Holding, Inc. (TAX), Odyssey Marine Exploration Inc. (OMEX) and SouFun Holdings Ltd. (SFUN). All these stocks carry a Zacks Rank #1 (Strong Buy).