MXT, overreaction yesterday? Article from Minneapolis
Metris stock falls on new caution over outlook
Dee DePass
Star Tribune
Published Mar 26, 2002
Metris Companies' stock plunged 23 percent Monday after the firm outlined higher-than-expected credit card charge-offs in its annual report, prompting an analyst to downgrade its earnings.
The stock dropped to $19.03 a share after Wachovia Securities analyst Meredith Whitney cut her 2002 earnings estimate from $2.70 a share to $2.40. She cited an increased risk from the "higher charge-off scenario and potential liquidity strains revealed by the company's 10-K filing" with the Securities and Exchange Commission.
Other analysts remained sanguine about Metris, but their views couldn't stem the selloff, which came on trading volume that was five times the average and underscored the recent volatility of the shares.
Metris stock has yo-yoed between the mid-$20s and about $12 a share in the past three months.
"Obviously we're disappointed in today's movement in our stock price. The reality is that our share price is still up 60 percent from it's January lows," said Metris spokesman Mike Smith.
Metris, which provides credit to low-and middle-income consumers, reported debt charge-offs for 2001 that were higher than expected. The debt contributed to a situation in which Metris for a time last year was forced to boost reserves by $21.3 million to comply with a trust agreement related to a fixed-rate security.
Other analysts dismissed the issue, noting that the security in question retires next month.
Metris' annual report also revealed that more of its customers' credit card balances top the $5,000 mark, a risky situation given the economy and the possibility of "cash strapped" and "strained" cardholders, Whitney said.
The analyst also expressed concern about Metris' subsidiary, Direct Merchants Bank, which was briefly undercapitalized in 2001. That forced Direct Merchants to "sell $610 million in loans to Metris for securitization in order to be considered well-capitalized. Without this designation, it would be prohibited from accepting brokered deposits, which account for 20 percent of the company's funding," Whitney wrote.
In contrast, Bear Stearns analysts David Hochstim and Scott Coren were not concerned about Metris' direction.
In a research report issued Monday, they said the firm's decision to lend more to existing customers was consistent with the strategy it laid out last year when it deliberately slowed its account growth.
While they recognized that higher balances might lead to higher charge-offs, Metris' "very seasoned book" should help limit that risk, they said.
"We view Metris' ability to comply with the new capital standards for subprime assets as a sign of the company's flexibility. . . . We don't believe there are any significant issues that cause us to revise our estimates or our view that Metris' shares are undervalued."
Bear Stearns expects 2002 earnings to hit $2.83 and 2003 earnings to reach $3.25.
Analysts' consensus estimates are $2.79 a share for 2002 and $3.12 a share for 2003.
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