Story First Appeared on Business Insider -
Following is a list of ten of the U.S. companies which GMI Ratings (a governance research firm) has identified as having a high likelihood of insolvency in the next twelve months.
This list is by no means comprehensive, nor are these the companies at greatest risk. Rather, they present potential solvency issues that have not yet been identified by the marketplace.
Analysis using GMI Ratings’ Bankruptcy Risk Model places the probability of insolvency of the listed companies in a range from 6.5 percent to 23.3 percent, or a one in four chance. Another dozen companies tested with similar results, but were removed from the list because they are late filers and probabilities of bankruptcy could not be determined without more recent data.
The likelihood of insolvency during the next one-year period is a function of a company’s exposure in four areas:
• Macro-economic events (i.e., the state of the overall economy). The U.S. may still be in the throes of recession, with added alarm over the debt crises in Europe, and the pace of recovery is lethargic.
• Micro-economic events (i.e., the state of the industry). The home building industry has suffered greatly in the past four years. Airlines are at the mercy of fluctuating oil prices. Bookstores and paper products are fighting to overcome reduced demand. Other industries may find themselves disproportionately affected.
• Specific product events, such as product failure.
• The company’s ability to finance continuing operations.
All these factors are intertwined, and impact each company in varying degrees.
(All bankruptcy risks were calculated by GMI Ratings.)
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#10 Targacept, Inc.
Bankruptcy risk: 6.5%
Market cap ($MM): $140
Founded: 1997
Industry: Biotechnology
Targacept is in Biotechnology, a highly competitive industry dependent on successful product launches. Product failure can be a disaster.
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#9 KB Home
Bankruptcy risk: 7.7%
Market cap ($MM): $592
Founded: 1957
Industry: Home-Building
KB Home is in home building. The market is convinced that this industry is turning around. That may be true, but the rate of change may not be sufficient to support the very large debt levels associated with KB Home over the next 12 months.
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#8 Pacific Sunwear of California, Inc.
Bankruptcy risk: 7.9%
Market cap ($MM): $112
Founded: 1980
Industry: Retail - Apparel / Accessories
The Retail Apparel industry is constantly faced with winners and losers. It is highly dependent on second-guessing the latest fad. Pacific Sunwear (PacSun) seems to be on the wrong side of the marketplace. New product introduction may save them but that, in itself, is associated with substantial risk.
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#7 Central European Distribution Corp
Bankruptcy risk: 7.9%
Market cap ($MM): $228
Founded: 1990
Industry: Beverages - Distillers / Wineries
Central European Distribution Corporation is also in a highly competitive business. The company’s management has proven time and time again that its business decisions are inept. There are many questions surrounding the quality of their accounting.
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#6 Coldwater Creek Inc.
Bankruptcy risk: 8.9%
Market cap ($MM): $79
Founded: 1984
Industry: Retail - Apparel / Accessories
Like Pacific Sunwear, Coldwater Creek is an apparel company that seems to be on the wrong side of the marketplace. Introducing new products may save them, but that's still a very risky venture.
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#5 Republic Airways Holdings Inc.
Bankruptcy risk: 10.8%
Market cap ($MM): $268
Founded: 1973
Industry: Airlines
Debt-laden airline Republic Airways is very dependent on the price of jet fuel, which tracks the cost of oil. There are accounting questions here as well.
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#4 Beazer Homes USA, Inc.
Bankruptcy risk: 11.0%
Market cap ($MM): $263
Founded: 1985
Industry: Home-building
Companies in the home-building industry, like Beazer Homes USA, have been suffering in this economy. Although many people believe that the home-building market is turning around, the rate of change may not be sufficient to support the very large debt levels associated with Beazer over the next 12 months.
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#3 Complete Genomics, Inc.
Bankruptcy risk: 13.3%
Market cap ($MM): $64
Founded: 2006
Industry: Biotechnology
Biotechnology is a highly competitive industry dependent on successful product launches. For companies like Complete Genomics, product failure can mean financial disaster.
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#2 Globalstar, Inc.
Bankruptcy risk: 15.7%
Market cap ($MM): $106
Founded: 1991
Industry: Wireless Telecommunications Services
Many years ago, Globalstar chose a technology that is no longer mainstream. They become more marginalized as a business with the passage of time.
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#1 MEMC Electronic Materials, Inc.
Bankruptcy risk: 23.3%
Market cap ($MM): $388
Founded: 1959
Industry: Semiconductors
MEMC has substantially shifted its focus to the solar power industry and away from semi-conductor subcontracting. The risk of success is extremely high, not only for MEMC but for any company that makes such a dramatic change in its core business.
