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TSC Ratings' Updates: Martha Stewart

ROE has greatly decreased since the same quarter last year, a signal of major weakness. EPS declined 123.8%, but the consensus estimate suggests that the company's yearlong pattern of declining EPS should reverse in the coming year. Net income fell to -$8 million from $33.3 million in the year-ago quarter. Revenue fell 38.5%, significantly faster than the industry average of 20.7%.

Shares have tumbled by 67.9% over the year, underperforming the S&P 500, but that 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.

We've downgraded specialty pharmaceutical company Medicis Pharmaceutical (MRX) from hold to sell, driven by its decline in the stock price during the past year, deteriorating net income, disappointing return on equity and feeble growth in its earnings per share.

Net income decreased to -$8.6 million in the most recent quarter from $23.2 million in the year-ago quarter, significantly underperforming the S&P 500 and the pharmaceuticals industry. Return on equity also greatly decreased, a signal of major weakness. EPS declined by 142.9%, though the consensus estimate suggests that the company's yearlong trend of declining EPS should reverse in the coming year. Medicis' gross profit margin of 94.5% is very high, having increased from the same quarter last year, and its net profit margin of -6.3% is in line with the industry average.

Shares have plunged 37.4% over the past year, though the performance of the broader market has been even worse. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. Based on its current price in relation to its earnings, Medicis is still more expensive than most of the other companies in its industry.
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