The following ratings changes were generated on Monday, Dec. 8.
We've downgraded CapitalSource (CSE), which provides loans to small and medium-sized businesses, from hold to sell, driven by its generally disappointing historical performance in the stock itself, deteriorating net income, generally weak debt management, disappointing return on equity and feeble growth in its earnings per share.
Net income decreased by 71.5% since the same quarter last year, from $28.3 million to $8.1 million, underperforming both the S&P 500 and the REITs industry. The debt-to-equity ratio is very high at 3.74 and currently higher than the industry average, implying very poor management of debt levels within the company. Current return on equity is lower than its ROE from the same quarter one year prior, a clear sign of weakness within the company, and on the basis of ROE, CapitalSource underperforms both the S&P 500 and the industry.
Earnings per share have declined steeply, by 80%, in the most recent quarter compared with the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years, but the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CapitalSource reported lower earnings of 96 cents vs. $1.66 in the prior year. This year, the market expects an improvement in earnings to $1.25.Shares are down 74.4% on the year, underperforming the S&P 500. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.