Legg Mason Inc. Stock Downgraded (LM)

NEW YORK ( TheStreet) -- Legg Mason (NYSE: LM) has been downgraded by TheStreet Ratings from buy to hold. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income.

Highlights from the ratings report include:
  • LM's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Despite the weak revenue results, LM has outperformed against the industry average of 30.0%. Since the same quarter one year prior, revenues fell by 14.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, LEGG MASON INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • LEGG MASON INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, LEGG MASON INC reported lower earnings of $1.53 versus $1.66 in the prior year. For the next year, the market is expecting a contraction of 5.9% in earnings ($1.44 versus $1.53).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 115.8% when compared to the same quarter one year ago, falling from $59.95 million to -$9.46 million.

Legg Mason, Inc. provides asset management and related financial services to institutional and individual clients, company-sponsored mutual funds, and other pooled investment vehicles worldwide. The company has a P/E ratio of 19.8, below the average financial services industry P/E ratio of 24.2 and above the S&P 500 P/E ratio of 17.7. Legg Mason has a market cap of $3.6 billion and is part of the financial sector and financial services industry. Shares are up 6.9% year to date as of the close of trading on Tuesday.

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

-- Written by a member of TheStreet Ratings Staff

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.
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