CEC, Meadowbrook: Ratings Changes

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BOSTON (TheStreet) -- TheStreet.com's stock-rating model downgraded CEC Entertainment(CEC Quote), franchiser of Chuck E. Cheese's, to "hold."

The numbers: Second-quarter net income decreased 20% to $9 million and earnings per share fell 17% to 39 cents. Revenue declined 4% to $185 million. Its gross margin dropped from 41% to 40% and its operating margin descended from 12% to 9%. A quick ratio of 0.4 indicates weak liquidity and a debt-to-equity ratio of 2 reflects excessive leverage.

The stock: CEC Entertainment is up 12% this year, outpacing the Dow Jones Industrial Average, but underperforming the S&P 500 Index. The stock trades at a price-to-earnings ratio of 11, a discount to restaurant peers and the market. The company doesn't pay dividends.

The model downgraded California Pizza Kitchen(CPKI Quote) to "hold."

The numbers: Second-quarter net income fell 7% to $6.1 million and earnings per share fell 4% to 25 cents, cushioned by a lower share count. Revenue declined 3% to $171 million. Its gross margin dropped from 20% to 19%, but its operating margin remained steady at 5%. A quick ratio of 0.3 and just $14 million of cash demonstrate weak liquidity. A debt-to-equity ratio of 0.3 indicates modest leverage.

The stock: California Pizza Kitchen has advanced 31% this year, beating major U.S. indices. The stock trades at a price-to-earnings ratio of 41, a premium to restaurant peers and the market. The company doesn't pay dividends.

The model upgraded Meadowbrook Insurance(MIG Quote) to "buy."

The numbers: Second-quarter net income rose 38% to $12 million, but earnings per share dropped 15% to 20 cents due to a higher share count. Revenue surged 57% to $147 million. Its gross margin fell from 16% to 14% and its operating margin declined from 15% to 12%. The company has a strong financial position, with $176 million of cash, compared to $136 million of debt.