Providian Down -3: Sale Of Co May Be Best For Investors
Dow Jones Newswires
Providian also said late Thursday that it earned 20 cents a share in the third quarter, in line with the analyst consensus estimate and the company's downwardly revised target range of 19 to 21 cents a share. However, that was a far cry from its previous target of 82 cents to 84 cents a share. Investors were forewarned - for a total of four earnings adjustments this year - on Oct. 12.
And it only gets worse. Providian now expects fourth-quarter earnings of 10 cents to 15 cents a share, resulting in full-year 2001 earnings in the range of $1.87 to $1.92 a share. That's well below Wall Street's estimates of 60 cents a share for the fourth quarter and $2.37 a share for the full year.
Much of the problem stems from a dismal credit picture. Providian expects that the net credit loss rate will be slightly above 12% of total loans, which would require the company to set aside an incremental $100 million provision loss on uncollectible debt.
The outlook becomes bleaker for 2002 as credit losses "will increase significantly above 2001 levels" due largely to deterioration in its highest-risk loan portfolio, as well as continued weakness in the economy. Analysts said losses could peak at 18% to 20%.
The credit loss rate for the third quarter was 10.33% compared with 10.29% in the second quarter.
Despite the fix-it plan announced, which includes abandoning lending in the highest-risk market while focusing marketing dollars toward its middle-market segment, analysts said an outright sale of the company might be better for investors.
"Of course, we don't know what company might be willing to step up to the plate in a recession, if any at all," analyst Mark Alpert of Deutsche Banc Alex. Brown said in a research note. "In addition, Providian might have to sell good pieces to survive."
Valuing the stock is highly subjective, as well as speculative, but he estimates the "sum of the receivables" has a book value of about $7.30 a share if they are sold together and swiftly. Assuming that book value holds, he said a takeover value could range between $15 and $16 a share.
Another possibility is hiring a high-profile chief executive "who can lend profitability while losses work through," said analyst Michael Hughes of Merrill Lynch.
A more short-term concern is the company's financial health. The company assured that its "funding, liquidity and capital positions remain strong," including $5 billion in cash and short-term investments and diversified sources of retail and wholesale deposits, as well as broad access to the securitization markets.
However, Alpert said the near- to mid-term fate may be determined by the funding markets since Providian will need to rely on securitizations and FDIC-insured deposits to maintain liquidity.
A string of research teams lowered their ratings on Providian shares: Jefferies cut the stock to sell from hold, Merrill Lynch downgraded it to neutral from buy, and J.P. Morgan lowered it to market-perform from long-term buy. Prudential Securities maintained its sell rating on the shares.
-By Tara Siegel Bernard, Dow Jones Newswires; 201-938-5288; tara.siegel@dowjones.com |
