S&P Upgrades E*Trade Despite Struggling Financial Sector Peers 42 comments
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Yesterday afternoon S&P Marketscope posted the following:
S&P UPGRADES SHARES OF ETRADE FINANCIAL TO HOLD FROM SELL
2:22 PM ET 6/11/08 | S&P Marketscope
We think management has been straightforward in their disclosure of exposures to troubled mortgage securities and has made strides to reduce this exposure. It has also been able to attract customers and post strong trading volume despite balance sheet issues. We expect loan loss provisions and valuation adjustments will continue to weigh on results, but we think ETFC has acted in a timely manner and should be able to sustain its business. We are raising our target price by $0.50 to $4.00, a discount to its book value, but keep our '08 estimate at a loss of $0.49.
This is the first upgrade that E*Trade has had since February 2007 (see Yahoo Finance), and comes at a time when many other financial institutions have revealed that they have not “been straightforward in their disclosures,” and are scrambling and “figuring out what they are going to do to survive.” Market reaction to these company’s disappointing announcements has been severe and unjustly penalizing across the broad financial sector, including E*Trade.
The reputation that the S&P has for independence, objectivity, and overall conservative positioning in their analyses makes this upgrade and viewpoint more significant than other potentially biased opinions. The S&P’s conservative stance can be seen in their prior April 22, 2008 12-month Target Price of $3.50 (when the general market has already been trending to a price of around $4), and their current 12-month Target Price of only $4.00.
The S&P conservative pricing is of course related to their concern with the future performance of E*Trade’s mortgage portfolio. Updated performance details in April (1st Quarter Conference Call) and May (Annual Shareholder’s Meeting) indicated acceptable and favorable performance within ranges previously estimated by management. In other words, what management had provisioned and booked as losses as of the 4th Quarter in January 2008 needed no additional adjustment as of April and May. Very significant results given the types of large negative adjustments other mortgage institutions are incurring. New updates on E*Trade’s mortgage portfolio performance will be a major point of interest during next month’s July 25th, 2nd Quarter Conference Call.
I had no idea when I submitted my article “E*Trade’s ‘First In, First Out’ Position: Yes, 111M Shorts Can be Wrong” on Tuesday morning that the S&P would also come out with a Wednesday upgrade statement that has many similarities to my article. Obviously I find those similarities quite gratifying. I do need to make one correction to the information contained in my article regarding the 111M of short interest. After the market close on Tuesday, June 10, the Short Interest Position as of the end of May was reported at NASDAQTrader.com (enter symbol ETFC). Interestingly, E*Trade’s Short Interest has decrease from 111.4 million on May 15 to 105.8 million as of May 30. However, because of lower trading volume, “Days to Cover” has increased from 5.11 days to 6.78 days.
E*Trade caught my eye back in April just prior to its 1st Quarter earnings report. It has been a very rewarding investment, but of course, you as the reader must research the facts and do your own due diligence. After weeks of continual investigation and many positive events (metrics, marketing, brokerage tools), it is nice to see the S&P lead in turning the tide in the right direction from the analyst arena.
Disclosure: Long
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This article has 42 comments:
First upgrade for Etrade in a year, let's get this party started. Pay attention to the wording of the upgrade, management has taken their medicine and now they are moving forward. If only all the other banks would do the same.
By the way - they are way off on their price target and loss estimates. 46 cents this year? We took 20 cents in the 1Q.
By the 3Q we will be profitable again, in my humble opinion.
This company has been 'beat down' for too long now, and is indeed ready for a 'magic moment'.
Either way, I am still accumulating positions both in equity shares and options on this one as the fundamentals don't lie and it has survived its near demise and appears to be making the turn. I am bullish all the way on ETFC.
Have to admire your determination pushing this rock up the hill,Sisyphus has nothing on you babe.
This comment did have me scratching my head though,"It has been a very rewarding investment," since you began pumping 4-18-08 and the stock is essentially flat since then despite your ten attempts to revive it???
Are you recommending it as a LT investment or are you trading the swings? Most here,I believe,thought LT was your focus but perhaps trading is your real game?
And I see you finally posted here in the response section ,can we now assume you're ready to defend your "love child"?
Personally,were I to trade it ST I'd be afraid of being accused of frontrunning the pump pieces but I suppose that wouldn't apply to someone of your exemplary moral character?
BTW,I think the record on the ETFC board is clear that you've thrown as least as many personal insults my way as vice versa.But thanks for throwing out another baseless claim.Stick around I'm sure the fans will have lots of questions for you going forward.
I see the Bank stocks killing us all on this one though, unless there is a fight to quality. I am betting on the fact that Oil has ben artificailly pumped and the Specs have ruined the economy by buy Oil at rediculous prices.
I am seeing the turn though as well, the economy is still moving and I don't see a Crash on the horizon, lets see what Oil does and then lets talk
Oh, the upgrade by S&P was based on the price falling below $4 and nothing more, until ETrade can show profits we will see this stock ST between 3.5 and 4 and hope for the best.
I've followed your ETFC articles for several months now and while I'm rooting for them to recover (no current position) the frequency of articles that you generate on ETFC (especially considering that on SeekingAlpha you're batting 1.000 since April on ETFC articles) makes me think you're a part-time employee in the PR department. The lack of other writers on this site even mentioning the stock is next to nil, and while I understand trying to buying on the cheap and sharing your investment advice with others, I also understand catching a falling knife and pumping. While I wouldn't go as far as to call you an E-Trade pumper, especially because it looks like you put effort and thought into your articles, your undying confidence vs. everyone's else indifference or neglect isn't exactly inspirational.
I think ETFC is a covered call idea at best for the time being. There's no positive momentum in the stock and the way the market is moving right now, especially financials, it's hard to want to throw my money at it. Good luck though...
Cindy has sent out 10 glowing tributes in this time period.
I'm sure it's coincidence.
How many of you have seen this?
ETFC's Presentation of its Recovery Plan
files.shareholder.com/......
Cheers,
pcyhuang
What do you make of the 80M shares next to "Buyers 6/11/08" on the Institutional Ownership section of Insider Activity?
Analysts agree: whatever you do, don't buy E*Trade Financial Corporation (ETFC)
www.schaeffersresearch...
Stock is doing well and we can see more movement in the weeks to come.. Hold on everyone the economy is turning around very fast if you blink you will mis it....
Oh yeah, oil is falling, place your puts now as you will see drastick fall in oil....
Which types of info that institutions see are available to the public? Or how can the small individual investor find out what the institutions are doing? Thanks.
I believe in "investing", not trading and am willing to wait several years if I buy into value.
Long 26,000 shares, 16 K at $2.40
Since what is happening here seems to be some sort of extrapolation on general sentiment I will make a serious effort to share my thoughts and observations with you all. Sit back and enjoy the ride.
First off though I want to state my position on ETFC, just so I won't be accused of being a pumper nor a basher. Currently I have no position in ETFC. When I said they will out-beta any index by 300-500% it should be clear that beta works either way. The $5-mark / 90% fail-break observation (and $2 for that matter) didn't get any feedback, which is a pity since it is one of the most overlooked yet reliable rules in the whole wide stock universe (valid even with optical plays such as reverse splitting).
Now for the real work, starting with the general state of affairs. In my opinion we haven't yet scrathed the surface of what will become a world of pain. The Dow is off by some 20%, peanuts, in EUR terms the Dow has been stuck, for 5 years running, around the 8k-10k mark. Currently it is at 8k (12307,35 * 0.65), and yes, as you perhaps had guessed already, I am European. That's what happens when the USD goes Zimbabwean. It is my belief that we're currently in the 2nd phase of the 1st wave (mortgage meldown). The 3rd and final phase will start shortly, with (Option) ARM reset. The second and third wave will come ashore this fall, they are durable-credit and non-durable credit, and these waves will be bigger, longer and have a much greater impact than the first wave, difficult to imagine as it is, because they will affect not just upside-down home-owners and financials, they will hit everybody. This is the real unwind, affecting people in mortgage-free houses too, and it will take at least a decade to work through it, possibly much more (just ask our harikiri friends how they are doing, some 20 years after the top). Cash will be king, which doesn't spell much good for stocks, and you can see Treasury yield ticking up already. Actually spiking up is a better name for it. Cash is getting more expensive regardless of the FED Funds Rate. FED up, that's what the market is.
Let's enter the financial subfield of brokerage now. I have no doubt that the ETFC platform is great, many people here attest to that. I have no idea but will take their word for it. Good for ETFC. The problem is that ETFC is a bank disguised as a broker. Cindy has been busy combing through the numbers, which in my opinion is useless, since we won't know what we won't know, Rumsfeld's unknown unknowns so to speak. Trust should be regained in that matter, which will take time, which is running out, as stated above.
Also the longterm profitability of ETFC (per share) must somehow be factored in, and here it gets interesting. Some of you may have heart of VanderMoolen (MOO), a Dutch brokerage. They used to have American operations, since wound down / sold. Search for the stockchart of this puppy, it is almost a carbon-copy of ETFC. History doesn't repeat itself, but it rhymes. MOO currently stands at EUR 3,27, with a 12 month high/low of 4,29/1,75. All-time high was over €40 7 years ago. My point here is that the 2-5 rule, with a slight undershoot, is alive and kickin'.
This week S&P upgraded ETFC. I won't go into S&P, apart from saying that whatever they think doesn't interest me in the least, just to be clear on that one. Cindy probably climaxed on that call, but the stock didn't, being exactly in the beta observation, 111m shorts included. It is my belief that almost all shorts above $5 have hedged by now, so I do not see a short squeeze above that level.
I am winding down Your Honor. If you ask me gun to head where ETFC will be in 2 year's time: $3,50. We will see $2 ánd $5. Since I have no idea which one will come first I will sideline until one of these levels is breached and then, with defined risk, will take a contrary position. Pumpbaby Cindy, and friends, will fade over time, although in the meantime they are mighty irritating. The relentless pumping was what triggered me to respond in the first place. ETFC the company I wish all the best, no grudges here, have made some money with it, not much, but my position wasn't big to begin with. Any questions?
1. The statistics is correct, but to be more precise, it says that 90% of stocks that fall below $5 never go above $10 (according to Crest Advisors). In addition, it says that companies that both bought assets or companies in their core market while selling non-core assets increased their odds of recovering by 250%. Etrade is doing both.
2. You say that history doesn't repeat itself, but it rhymes, yet you do not look at etrade's history at all. etrade was below $5 in 1996, above $10 in 1997, below $5 in 1998, above $10 in 1999, below $5 in 2002, above $10 in 2003, and now below $5 again. The dutch stock you mention is not a good indicator at all since you can always pick a single stock that would fit your case no matter what it is.
3. Here is more information about Van der Moolen that you do not mention:
They invested a lot of money in specialist business and did not make a profit. “Being a specialist is not a strategic business model … We’re losing money,” said Richard den Drijver, CEO of Van der Moolen Holding NV
And from wikipedia:
On the New York Stock Exchange, Van der Moolen served as specialist until 2007 when it sold the activities to Lehman Brothers. In 2003, Van der Moolen became subject to an investigation by the SEC on allegations of front running. In 2004, Van der Moolen reached a settlement with the SEC and paid a fine of $57.7 million. Some employees have been convicted of fraud.
www.wallstreetknowital.../
As for the S&P upgrade, that is like Morningstar upgrading it. In other words, it means nothing. S&P doesn't exactly have a great track record. If you will recall, one of the main reasons for the mess in the financials was due to the irresponsible ratings provided by S&P and other credit agencies.
If anyone wants to venture into the riskiest industry right now, you'd be best served by hitting those stocks with the greatest volitility and volume, but for only short-term trading -WM and LEH. of course I don't expect many of you ETFC investors to know that WM has had 15% intraday volatility for most many days over the past 4 months. The financials are only in a position to be traded short-term right now and only if you drowl over risk. Given that, ETFC volatility pales in comparison to most other financials. Anyone buying financials for "long-term gains" is a fool, regardless what happens.
It's all about risk and reward. And there are many other financials with lower risk and equal or similar reward. Furthermore, there are many other industries with exceedingly low risk and very high reward.
"The only reason I have not switched is because I am so used to ETFC."
So, $7.99 trades with a guaranteed 2 second execution is a bad thing, right?
LMAO
You should change your screen name to "NeedToLearnHowtoExpre... Your arguments are poor, lack common sense and technical depth.
You claim ETFC is risky? Based upon what facts? Maybe because their average monthly volume has been increasing three months straight? Or maybe because they have sold off assets to improve their liquidity position? Or is it because they are about to launch the only online mobile trading platform? The company has $6.50 in cash and its balance sheet steadily improving.
This stock will have a 10 handle by Jan 09. Third quarter earnings will surprise the shorts.
S&P REDUCES RECOMMENDATION ON SHARES OF E TRADE FINANCIAL TO SELL FROM HOLDFont size: A | A | A
5:58 PM ET 7/22/08 | S&P Marketscope
RELATED QUOTES
4:00 PM ET 7/23/08
Symbol Last % Chg
ETFC
3.41 -15.80%
Quotes delayed at least 15 minutes
Q2 loss from continuing operations of $0.24 vs. EPS of $0.37 is wider than our $0.15 loss estimate. Loss provision for home equity portfolio was wider than we expected and credit quality declined, while losses on security sales offset better net interest margin and cost controls. Losses from investments in the GSEs will hurt Q3 results, but capital raised from other asset sales may offset. Net account growth also slowed. We widen our '08 loss estimate widens to $0.65 from $0.49, but keep target price at $3, a discount to a declining projected book value as writedowns continue.