NEW YORK ( TheStreet) -- CEC Entertainment (NYSE: CEC) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels, good cash flow from operations, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, CEC ENTERTAINMENT INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has increased to $43.19 million or 17.14% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.47%.
  • 40.90% is the gross profit margin for CEC ENTERTAINMENT INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, CEC's net profit margin of 5.80% significantly trails the industry average.
  • CEC ENTERTAINMENT INC's earnings per share improvement from the most recent quarter was slightly positive. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CEC ENTERTAINMENT INC reported lower earnings of $2.49 versus $2.66 in the prior year. This year, the market expects an improvement in earnings ($2.86 versus $2.49).

CEC Entertainment, Inc. and its subsidiaries develop, operate, and franchise family dining and entertainment centers under the Chuck E. Cheese's name in the United States and internationally. The company has a P/E ratio of 11.9, below the average leisure industry P/E ratio of 12.1 and below the S&P 500 P/E ratio of 17.7. CEC Entertainment has a market cap of $660.8 million and is part of the services sector and leisure industry. Shares are down 12.3% year to date as of the close of trading on Wednesday.

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