Analyst affirms "Sell" rating for Doral Financial

An analyst on Thursday reiterated his "Sell" rating on Doral Financial Corp., a Puerto Rican financial services firm.

Sterne Agee analyst Adam Barkstrom wrote in a research note that more than half of Doral Financial's book value consists of deferred tax assets and its common equity is overvalued.

Barkstrom lowered his price target for the stock to $8 per share. Shares of Doral Financial rose 13 cents to $19.99 in afternoon trading.

Barkstrom said Doral Financial's financial results have been pressured by mounting loan-loss reserves as delinquencies and defaults rise on mortgages and other loans. That in turn forced Doral Financial to raise capital to meet certain ratio requirements.

If loan losses at Doral Financial continue to rise in coming quarters, the company might need to raise further cash to shore up its books, Barkstrom wrote in the research note.

Doral Financial's loss provision was much lower in the first quarter than the fourth quarter, Barkstrom said. But, the number of construction loans that were not being paid off during the quarter increased, "so we are not yet convinced that the negative trends are behind us," Barkstrom wrote in the note.

Doral shares rose 14 cents to $20 in afternoon trading.