CapitalSource Inc. (CSE): Takeaways from Financials Conference
Stock Rating: 1-Overweight
Sector Rating: 1-Positive
Price: US$ 16.30
Price Target: US$ 32.00
Current Year EPS: 2.65
Next Year EPS: 2.95
Market Cap: US$ 2901 (m)
Yesterday, we had the opportunity to hear from CapitalSource's CEO, John Delaney. CEO Delaney reiterated
that the company's liquidity is sound and highlighted a new deal of just over $1 billion in term financing of its
commercial real estate loans. In addition, management discussed the potential benefits of the TONE deal,
including goals of ramping up deposit based funding while shrinking the TONE asset base, which should allow
for considerably lower cost of funding for the entire company. This coupled with the tax advantages that its
REIT status allows, should enable the company higher ROEs longer term. Management expects the deal to
close during the fourth quarter at the same terms as were agreed upon at the time of the deal announcement.
Overall, we continue to believe that CSE will meet its 2007 dividend guidance of $2.40, which represents a
dividend yield of more than 14%.
After accounting for slightly slower growth and higher funding costs versus our previous estimates, we are
lowering our 3Q07 and 2007 adjusted EPS estimates by $0.02, and $0.05 to $0.67 and $2.65, respectively. We
also adjusted our 2008 EPS estimate by $0.03 to $2.95.
AI
