A nearly $2 billion boost of equity capital means "the worst is now behind" E-Trade Financial Corp., an analyst said Tuesday, becoming the latest company watcher to upgrade or raise estimates on the online broker following its stock offering last week and the debt swap begun Monday.
E-Trade shares rose 9.2 percent, or 11 cents, to $1.30 in premarket trading Tuesday. Its shares have tumbled by about 28 percent since announcing last Wednesday it would sell 435 million common shares to the public and an additional 90.9 million to Citadel Investment Group LLC, its largest shareholder. E-Trade also on Monday began a swap of outstanding debt for new 10-year notes convertible into common stock.
FBR Capital Markets analyst Matt Snowling upgraded E-Trade to "Outperform" from "Underperform" in a note to investors Tuesday and raised his estimate on results for 2009 and 2010 _ changing his mind from his stance last Wednesday, when he reiterated his negative call.
Monday, Fox-Pitt Kelton analyst David Trone upgraded the broker to "In Line" from "Underperform," saying the capital raise will be a "sufficient cushion" to get the company through the first quarter of 2010. Last week, analysts from JMP Securities raised their estimates, as did Credit Suisse analysts Tuesday morning.
E-Trade raised $613 million last week from selling common stock, Snowling said, and the amount of debt to be exchanged may be as high as $1.75 billion, reducing annual interest expenses on debt by about $150 million.
Those actions, which are designed to provide a financial cushion to offset soured mortgage-related loan losses, will also likely more than double the company's shares outstanding, diluting the value of existing stock.
"The clarity on the company's capital structure, still strong business fundamentals, and increased possibility of attracting an acquirer now clears the way for investors to begin accumulating the shares at an attractive entry point," Snowling said.
He sees E-Trade posting a loss of 40 cents per share this year and a profit of a penny per share in 2010.
Analysts polled by Thomson Reuters, on average, expect a loss of $1.02 per share in 2009 and a loss of 19 cents per share next year.
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