Most chief executives who describe their company as simply surviving don't win applause on Wall Street. But as the home loan debacle deepens, IndyMac Bancorp Inc. has found some virtue in the fact that it's not dying.
The stock price of the Pasadena-based lender jumped 27 percent to $8.93 on Jan. 29, a few days after Chief Executive Michael Perry called his company "definitely a survivor" in a phone interview with Bloomberg News.
"We'll have a good shot of returning to profitability for the rest of the year in '08," Perry said on Jan. 24.
Although the comments sparked the biggest one-day gain for IndyMac since 1999, the stock still trades 79 percent lower than one year ago. Among the nine analysts who follow the company, three rate it as "sell" or "underperform," and no analyst believes investors should buy IndyMac now.
During the last year, IndyMac has tried to switch from so-called Alt-A non-conventional loans to conventional mortgages that can be purchased by government-backed agencies such as Freddie Mac and Fannie Mae. In the midst of an industrywide meltdown, the strategy has earned faint praise from investors.
The bank was one of the largest Alt-A lenders and was also weighed down by the subprime loans that have put the industry in a tailspin due to high foreclosures.
"We believe strategic challenges remain," Eric Wasserstrom, an analyst at UBS, wrote in a Jan. 16 report on IndyMac. Wasserstrom has a 12-month price target of $5 per share, more than $3 below the current trading price.
On Jan. 24 five days before the stock spike Fitch Ratings downgraded the company's long-term debt to junk status. Analyst Manuel Ramirez of brokerage Keefe Bruyette & Woods concluded that IndyMac's "credit quality shows little sign of stabilization, as Alt-A delinquencies continued to rise rapidly." Ramirez maintains a price target of $8 per share.
Even IndyMac's announcement on Jan. 15 that it would cut 2,400 jobs drew lukewarm response from analysts, who saw it as the obvious adjustment to the conventional loan market, which has lower profit margins than non-prime loans. "This reflects IndyMac's efforts to bring its cost structure in line with the underwriting guidelines at the government-sponsored enterprises and the associated margins on agency product," according to Wasserstrom.
Aside from Perry's comments, economic factors should help IndyMac. As part of a proposed stimulus package, Congress could expand the limit on conventional loans from $417,000 up to a maximum of $729,000. Also, the Federal Reserve has cut short-term interest rates to 3 percent, the lowest rate in years.
Both moves should encourage more mortgage lending, but as Charles Payne of Wall Street Strategies mentioned in an interview with BellWetherReport.com, IndyMac has suffered "collateral damage" from the industry's implosion.
"We think the stock is a high-risk buy," Payne said, but added that "it should be among the survivors when the dust settles."
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