Bankrate: Sub-Prime Mortgage Worries Are Overdone

Here at Tech Trader Daily, the sub-prime mortgage debacle isn’t a major issue. But it does creep into the discussion every once in a while, in particular for Internet sites which have benefited from advertising for cheap loans. It has been a particular perception problem for Bankrate (RATE), which provides loan information and other financial data.

Mark Mahaney, an analyst at Citigroup, notes that the stock dropped 25% through Thursday night from early February on concerns about the impact of the sub-prime crisis. But he thinks the worries are overdone, and Friday raised his rating on the stock to Buy from Hold.

Mahaney lists four reasons for his upgrade:

1. Attractive risk-reward.
2. Over-stated exposure to sub-prime market. Non-mortgage loans are more than half of revenue, sub-prime is about 5%, so “1%-2% direct risk.”
3. Number of advertisers on its rate tables up 2x over past two years. Recent display ads from Merrill (MER), Sony (SNE), Schwab (SCHW), Vanguard (VNQ).
4. Sees three material new growth drivers in Bankrate Select (improved lead generation tool); behavioral targeting and paid search. “Combined, they have the potential to re-accelerate already solid fundamentals."

Mahaney has a target price on the stock of $44. Friday, the stock was up $1.32 at $35.18.

RATE 1-yr chart