NEW YORK ( TheStreet) -- CapitalSource (NYSE: CSE) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and increase in stock price during the past year. However, as a counter to these strengths, we find that the company's profit margins have been poor overall.

Highlights from the ratings report include:
  • The gross profit margin for CAPITALSOURCE INC is rather low; currently it is at 20.90%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, CSE's net profit margin of 2.20% is significantly lower than the same period one year prior.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Commercial Banks industry and the overall market, CAPITALSOURCE INC's return on equity is below that of both the industry average and the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Commercial Banks industry average. The net income increased by 101.5% when compared to the same quarter one year prior, rising from -$211.69 million to $3.16 million.
  • CAPITALSOURCE INC reported significant earnings per share improvement 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CAPITALSOURCE INC continued to lose money by earning -$0.44 versus -$2.96 in the prior year. This year, the market expects an improvement in earnings ($0.40 versus -$0.44).

Operates as a specialized finance company that provides loans to small and medium-sized businesses. The company also selectively makes equity investments, engages in asset management and servicing activities, and invests in residential mortgage assets. It intends to qualify as a REIT in 2006. CapitalSource has a market cap of $2.2 billion and is part of the financial sector and financial services industry. Shares are down 5.9% year to date as of the close of trading on Friday.

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