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) -- Mercury General Corporation (NYSE: MCY) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.
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- The revenue growth came in higher than the industry average of 19.2%. Since the same quarter one year prior, revenues slightly increased by 4.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- MCY's debt-to-equity ratio is very low at 0.10 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
- MERCURY GENERAL CORP 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, MERCURY GENERAL CORP reported lower earnings of $2.04 versus $2.13 in the prior year. This year, the market expects an improvement in earnings ($2.41 versus $2.04).
- The gross profit margin for MERCURY GENERAL CORP is currently extremely low, coming in at 2.61%. Regardless of MCY'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 2.16% trails the industry average.
- 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. When compared to other companies in the Insurance industry and the overall market, MERCURY GENERAL CORP's return on equity is below that of both the industry average and the S&P 500.