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Home Properties Inc. Stock Downgraded (HME)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (TheStreet) -- Home Properties (NYSE:HME) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 237.1% when compared to the same quarter one year prior, rising from $15.39 million to $51.88 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.0%. Since the same quarter one year prior, revenues slightly increased by 9.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • HOME PROPERTIES INC has improved earnings per share by 28.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, HOME PROPERTIES INC increased its bottom line by earning $1.30 versus $0.81 in the prior year. For the next year, the market is expecting a contraction of 6.9% in earnings ($1.21 versus $1.30).
  • The gross profit margin for HOME PROPERTIES INC is currently lower than what is desirable, coming in at 31.80%. Regardless of HME's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HME's net profit margin of 31.05% compares favorably to the industry average.
  • In its most recent trading session, HME has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
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Home Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. The company has a P/E ratio of 43, above the S&P 500 P/E ratio of 17.7. Home has a market cap of $3.16 billion and is part of the financial sector and real estate industry. Shares are down 2.4% year to date as of the close of trading on Wednesday.

You can view the full Home Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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