RECOMMENDATION We rate BRONCO DRILLING CO (BRNC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. HIGHLIGHTS The revenue growth came in higher than the industry average of 29.3%. Since the same quarter one year prior, revenues rose by 39.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. BRNC's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, BRNC has a quick ratio of 2.20, which demonstrates the ability of the company to cover short-term liquidity needs. 44.90% is the gross profit margin for BRONCO DRILLING CO which we consider to be strong. Regardless of BRNC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 14.40% trails the industry average. BRONCO DRILLING CO's earnings per share declined by 8.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, BRONCO DRILLING CO increased its bottom line by earning $2.43 versus $0.25 in the prior year. For the next year, the market is expecting a contraction of 36.2% in earnings ($1.55 versus $2.43). Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, BRNC has underperformed the S&P 500 Index, declining 19.91% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
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