ETrade Financial Falls on 3Q Report
Thursday October 18, 10:02 am ET
Analysts Grow Jittery on E-Trade Financial in Wake of 3rd-Quarter Numbers Bombshell
NEW YORK (AP) -- Analysts took an increasingly dimmer view of online bank E-Trade Financial Corp. on Thursday, after the discount brokerage reported a third-quarter loss after writing down $197 million worth of mortgage-backed securities.
Shares of New York-based E-Trade lost 73 cents, or 5.7 percent, to $11.76 in morning trading Thursday.
For the period, E-Trade posted a loss of $58.4 million, or 14 cents per share, compared to profit of $153.2 million, or 35 cents per share, a year earlier. Total revenue fell to $321.2 million from $581.7 million last year.
Deutsche Bank Securities analyst Matthew Fischer downgraded the company to "Hold" from "Buy" and lowered his price target to $14 from $18, saying that while the company's retail offerings are strong, consolidation in its home equity unit may be the best option for long-term stability.
"We do not believe that E-Trade will be a viable candidate until the balance sheet is improved, which will likely need a couple quarters at a minimum," Fischer said in a client note.
FBR Research analyst Matt Snowling said the home equity meltdown has shaken his confidence in E-Trade's management. He lowered his outlook for 2008 and his price target to $17 from $22. Even with E-Trade's recent financial problems, Snowling said the company may be a prime takeover target, perhaps by TD Ameritrade or another brokerage.
"Despite the lack of investor confidence in the near term, we are reiterating our 'Outperform' rating to reflect the upside and the increased potential for a take out" Snowling said in a client note.
Citi Investment Research analyst Prashant A. Bhatia echoed Snowling's thoughts about E-Trade's leadership and questioned its ability to steer the company through rough waters.
"Credit deterioration seems to keep catching management by surprise, implying a potential breakdown in risk management at the CEO level," Bhatia said in a client note. He lowered his price target to $13 from $15 and his estimates for 2008.