FBR Capital Removes CapitalSource (CSE) from the Top Picks List; Still Sees Deeply Discounted Valuation

November 18, 2009 10:01 AM EST

FBR Capital removes CapitalSource (NYSE: CSE) from the Top Picks List, but maintains an Outperform rating. Price target $6.

FBR analyst says, "We added CSE to the FBR Top Picks list on November based on our expectations that the company was likely to announce themonetization of its healthcare segment sooner than most investorsanticipated. With the catalyst having largely played out (admittedly sooner than we expected), we are now removing the shares from the list, but still recommend the stock to investors based on its deep discounted valuation (58% of current TBV and 83% of our stressed book value estimate) and better financial position post-monetization of the healthcare assets (reduced likelihood of debt-for-equity dilution). Also of some concern was the two-year execution period on the sale of these assets, with a portion contingent on the buyer securing financing. Still, the sale removes a distraction, places the company on better financial footing, and refocuses management's attention to the company's transformation to a bank."

"We leave unchanged our 4Q09 EPS estimate of ($0.30) but are revising our respective 2010-2011 estimates to ($0.42) [from($0.37)] and $0.14 [from $0.25] to reflect the sale of assets. Our $6 price target equals 0.9x current and 1.0x 4Q10 TBV."

CapitalSource, Inc., a specialized finance company, provides various financial products to small and medium-sized businesses in the United States.

To see all the upgrades/downgrades on shares of CSE, visit our Analyst Ratings page.

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