Rating Change #1

Lexmark International Inc ( LXK) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

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Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 181.05% to $133.50 million when compared to the same quarter last year. In addition, LEXMARK INTL INC has also vastly surpassed the industry average cash flow growth rate of 34.08%.
  • 48.70% is the gross profit margin for LEXMARK INTL 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, LXK's net profit margin of 0.00% significantly trails the industry average.
  • LXK, with its decline in revenue, underperformed when compared the industry average of 17.9%. Since the same quarter one year prior, revenues fell by 11.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.50, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.96 is weak.
  • The share price of LEXMARK INTL INC has not done very well: it is down 20.68% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
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Lexmark International, Inc. develops, manufactures, and supplies printing and imaging solutions for offices. It offers laser printers, inkjet printers, and multifunction devices, as well as cartridges and other supplies, services, and solutions. The company has a P/E ratio of 11.9, below the S&P 500 P/E ratio of 17.7. Lexmark International has a market cap of $1.82 billion and is part of the technology sector and computer hardware industry. Shares are up 22.1% year to date as of the close of trading on Friday.

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

-- Reported by Kevin Baker in Palm Beach Gardens, Fla.

For additional Investment Research check out our Ratings Research Center.

For all other upgrades and downgrades made by TheStreet Ratings Model today check out our upgrades and downgrades list.

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.
Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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