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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- 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.