Ratings Changes: Lazard, PetSmart - TheStreet

Ratings Changes: Lazard, PetSmart

TheStreet.com Ratings upgraded investment bank Lazard and retailer PetSmart, and downgraded regional bank Trustmark.
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TheStreet.com Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking total return performance.

BOSTON (

TheStreet

) -- TheStreet.com's stock-rating model upgraded

American Electric Power

(AEP) - Get Report

to "buy." American Electric operates as a utility in the South.

The numbers

: First-quarter revenue remained steady at $3.5 billion as net income fell 37% to $361 million and earnings per share dropped 38% to 89 cents, hurt by a higher share count. The operating margin deteriorated from 23% to 22% and the net margin fell from 17% to 10%. American Electric has a weak financial position. The company holds just $925 million of cash reserves, amounting to a quick ratio of 0.2, and has nearly $19 billion of debt obligations and $238 million of quarterly interest expenses. A debt-to-equity ratio of 1.7 indicates excessive leverage. Heavy debt loads are common for utilities. Still, one of the company's strengths is consistency in revenue.

The stock

: American Electric has declined 8% in 2009, underperforming major U.S. indices. The stock trades at a cheap price-to-earnings ratio of 11 and offers a 5.3% dividend yield, which is well above the market average, making the company particularly attractive.

The model upgraded investment bank

Lazard

(LAZ) - Get Report

to "hold."

The numbers

: Second-quarter revenue decreased 20% to $402 million as net income dropped 18% to $28 million and earnings per share fell 37% to 34 cents, hurt by a higher share count. The operating margin declined from 25% to 21%, but the net margin inched up to 7%. Lazard has an adequate liquidity position, with $903 million of cash reserves. But a debt-to-equity ratio of 3.3 indicates excessive leverage. Lazard has enjoyed a surge in revenue from financial restructuring and is poised for further gains as deal volumes improve.

The stock

: Lazard is up 19% in 2009, beating the

Dow Jones Industrial Average

and

S&P 500 Index

. The stock offers a lackluster 1.1% dividend yield.

The model upgraded pet-supply retailer

PetSmart

(PETM)

to "buy."

The numbers

: Fiscal first-quarter revenue increased 9% to $1.3 billion as net income grew 12% to $46 million and earnings per share jumped 16% to 37 cents, helped by a lower share count. The operating margin hovered below 7% and the net margin remained steady at 3%. A quick ratio of 0.5 indicates a less-than-ideal liquidity position. But a debt-to-equity ratio of 0.5 demonstrates a sound capital structure.

The stock

: PetSmart has ascended 26% in 2009, beating the Dow and S&P 500. The stock trades at a fair price-to-earnings ratio of 15 and offers a mediocre 1.7% dividend yield.

The model upgraded integrated-circuit maker

Silicon Laboratories

(SLAB) - Get Report

to "buy."

The numbers

: Second-quarter revenue declined marginally to $104 million as net income fell 34% to $10 million and earnings per share dropped 28% to 21 cents, cushioned by a lower share count. The operating margin declined from 17% to 12% and the net margin dropped from 14% to 9%. The company has an ideal financial position, with $313 million of cash reserves, amounting to a quick ratio of 5.1, and no debt obligations.

The stock

: Silicon Laboratories has climbed 73% in 2009, easily beating major U.S. indices. The stock trades at an exorbitant price-to-earnings ratio of 91 and doesn't pay dividends.

The model downgraded regional bank

Trustmark

(TRMK) - Get Report

to "hold."

The numbers

: Second-quarter revenue decreased 9% to $153 million as net income fell 6% to $17 million and earnings per share dropped 26% to 23 cents. The operating margin increased from 22% to 34% and the net margin climbed from 10% to 11%. The company has an adequate liquidity position, as demonstrated by $237 million of cash reserves. And a debt-to-equity ratio of 0.9 indicates reasonable leverage.

The stock

: Trustmark is down 12% in 2009, underperforming major U.S. indices. The stock trades at a cheap price-to-earnings ratio of 12 and offers a 4.8% dividend yield, which is higher than the S&P 500 average.

-- Reported by Jake Lynch in Boston. Feedback can be sent to jake.lynch@thestreet.com.