From Standard & Poor's Equity ResearchMorgan Keegan downgraded True Religion Apparel (TRLG

) to market perform from outperform.

Analyst Brad Stephens says the downgrade is based on both valuation and his belief that True Religion's strategic review will result in an event other than an outright sale of the company. He expects True Religion to eventually name either a strategic partner or, less likely, a recapitalization of the company; he puts only a small probability on an outright sale of True Religion.

Stephens notes that the downgrade is not "a short call" on True Religion's fundamentals. In fact, believes upside exists to guidance if current trends continue.

The analyst maintains EPS estimates of 42 cents for the third quarter, 30 cents for the fourth quarter, $1.25 for 2006, and $1.50 for 2007.