Legg Mason Inc. Stock Downgraded (LM)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Legg Mason (NYSE: LM) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.

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Highlights from the ratings report include:
  • Powered by its strong earnings growth of 642.85% and other important driving factors, this stock has surged by 31.17% over the past year, outperforming the rise in the S&P 500 Index during the same period. Although LM had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 605.5% when compared to the same quarter one year prior, rising from -$9.46 million to $47.82 million.
  • LEGG MASON INC reported significant earnings per share improvement 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, LEGG MASON INC swung to a loss, reporting -$2.69 versus $1.53 in the prior year. This year, the market expects an improvement in earnings ($2.19 versus -$2.69).
  • The gross profit margin for LEGG MASON INC is rather low; currently it is at 15.33%. Regardless of LM's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.08% trails the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Capital Markets industry and the overall market, LEGG MASON INC's return on equity significantly trails that of both the industry average and the S&P 500.

Legg Mason Inc. is a holding company that, through its subsidiaries, is principally engaged in providing asset management, securities brokerage, investment banking and related financial services to individuals, institutions, corporations and municipalities. Legg Mason has a market cap of $4.13 billion and is part of the financial sector and financial services industry. Shares are up 30.2% 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.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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