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Rating Change Detail - WILLIAMS PARTNERS L.P. (WPZ) - 7/31/2010
The stock was downgraded from Some Interest to No Interest on 7/31/2010 by the Small-Cap Growth Investor Strategy based on the principles of the Motley Fool. The score according to this strategy fell from 72% to 65%. A full detailed analysis of WPZ using this strategy is included below. For a full detailed analysis of WPZ using 12 proven strategies of Wall Street Legends, take a free trial to Validea.com

Detailed Analysis of WILLIAMS PARTNERS L.P. (WPZ)

Strategy: Small Cap Growth Investor - Based on: Motley Fool

PROFIT MARGIN: [PASS]

This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. WPZ's profit margin of 22.10% passes this test.

RELATIVE STRENGTH: [PASS]

The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. WPZ, with a relative strength of 92, satisfies this test.

COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS]

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for WPZ (34.69% for EPS, and 26.46% for Sales) are good enough to pass.

INSIDER HOLDINGS: [PASS]

WPZ's insiders should own at least 10% (they own 92.27% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well.

CASH FLOW FROM OPERATIONS: [PASS]

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. WPZ's free cash flow of $0.33 per share passes this test.

PROFIT MARGIN CONSISTENCY: [FAIL]

The profit margin in the past must be consistently increasing. The profit margin of WPZ has been inconsistent in the past three years (Current year: 22.25%, Last year: 30.04%, Two years ago: 28.74%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.

R&D AS A PERCENTAGE OF SALES: [NEUTRAL]

This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in WPZ's case.

CASH AND CASH EQUIVALENTS: [FAIL]

WPZ does not have a sufficiently large amount of cash, $144.07 million, on hand relative to its size. Although this criteria does not apply to companies of this size, we defined anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. WPZ will have more of a difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criterion.

ACCOUNT RECEIVABLE TO SALES: [PASS]

This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for WPZ was 4.84% last year, while for this year it is 0.92%. Since the AR to sales is decreasing by -3.92% the stock passes this criterion.

LONG TERM DEBT/EQUITY RATIO: [FAIL]

WPZ's trailing twelve-month Debt/Equity ratio (148.70%) is too high, according to this methodology. You can find other more superior companies that do not have to borrow money in order to grow.

"THE FOOL RATIO" (P/E TO GROWTH): [FAIL]

The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider holding the shares when the company's Fool Ratio is greater than 0.65 (WPZ's is 0.76), but initial purchases in this range are unfavorable.

The following criteria for WPZ are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: [PASS]

WPZ has not been significantly increasing the number of shares outstanding within recent years which is a good sign. WPZ currently has 256.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.

SALES: [FAIL]

Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. WPZ's sales of $5,299.0 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.

DAILY DOLLAR VOLUME: [PASS]

WPZ passes the Daily Dollar Volume (DDV of $16.6 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf."

PRICE: [PASS]

This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. WPZ with a price of $46.34 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.

INCOME TAX PERCENTAGE: [FAIL]

WPZ's income tax paid last year is not available. This could be the cause for some concern according to this strategy. However, because this is not a critical criterion, it should not make or break your investment decision. In order to ensure that you receive a fair analysis we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).

For a full detailed analysis of WPZ using 12 proven strategies of Wall Street Legends,
take a free trial to Validea.com

Rating Change Detail - WILLIAMS PARTNERS L.P. (WPZ) - 7/31/2010

Detailed Analysis of WILLIAMS PARTNERS L.P. (WPZ)

Strategy: Small Cap Growth Investor - Based on: Motley Fool