Citigroup Downgrades eFunds (EFD) to Sell

June 18, 2007 8:48 AM EDT

Citigroup downgrades eFunds (NYSE: EFD) from Hold to Sell.

Citigroup analyst says, "We are downgrading EFD to Sell from Hold due to the unattractive risk/reward profile (we are leaving our $33 price target unchanged). If there is a deal, we see little or no upside to stock at current prices; while we could see significant downside if a deal does not occur or does not get the valuation investors are hoping for. We highlight the NPC deal from several years ago as an example of how the market can overestimate the price at which a company will be taken out. Further, the possibility remains that a deal does not go through in which case, we could see significant downside given the recent execution issues at the company.

Overall, with inexpensive valuations and takeover potential, we believe that short investors may look to cover their positions in some of the more-heavily shorted stocks from the past several months (GPN, HPY, CKFR). This could, in turn lead to rotation into other names (EFD, TSS) where valuations are high. As a result, we suggest that investors consider going long HPY/CKFR/GPN due to better fundamentals and valuation, while playing into any potential near term weakness on EFD/EEFT/TSS."

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