Limited Brands Inc. Stock Downgraded (LTD)

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) -- Limited Brands (NYSE: LTD) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we find that net income has been generally deteriorating over time.

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Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 60.99% to $388.00 million when compared to the same quarter last year. In addition, LIMITED BRANDS INC has also vastly surpassed the industry average cash flow growth rate of -21.43%.
  • 43.30% is the gross profit margin for LIMITED BRANDS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.00% trails the industry average.
  • LIMITED BRANDS INC's earnings per share declined by 32.9% in the most recent quarter compared to the same quarter a year ago. 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, LIMITED BRANDS INC increased its bottom line by earning $2.71 versus $2.42 in the prior year. This year, the market expects an improvement in earnings ($2.87 versus $2.71).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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 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 Specialty Retail industry. The net income has significantly decreased by 37.9% when compared to the same quarter one year ago, falling from $231.19 million to $143.65 million.
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Limited Brands, Inc. operates as a specialty retailer of women's intimate and other apparel, beauty, and personal care products and accessories primarily in the United States and Canada. The company has a P/E ratio of 20.4, equal to the average retail industry P/E ratio and above the S&P 500 P/E ratio of 17.7. Limited has a market cap of $13.87 billion and is part of the services sector and retail industry. Shares are up 19.8% year to date as of the close of trading on Tuesday.

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

-- Written by a member of TheStreet Ratings Staff

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