Friday Losers: Wilshire Bancorp, Lincare Holdings and Frontier Communications

By David Sterman,

Shutterstock photo

Among the biggest losers in Friday's early trading are Wilshire Bancorp (Nasdaq: WIBC ) , Frontier Communications (NYSE: FTR ) and Lincare Holdings (Nasdaq: LNCR ) .

Top Percentage Losers -- Friday, July 2, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
Wilshire Bancorp
(Nasdaq: WIBC )
$7.79 -8.9% $11.93 $5.75
Lincare Holdings
(Nasdaq: LNCR )
$28.99 -8.4% $33.45 $14.59
Frontier Com. (NYSE: FTR ) $7.43 -3.4% $8.57 $6.43

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 10:51AM Eastern Standard Time . Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

A Conservative Lender hints of Troubles

Here's a bit of sobering news as we head out for the long holiday weekend. One of the more conservative mid-sized banks in the country has just announced an unexpected downturn in its loan portfolio. Los Angeles-based Wilshire Bancorp (Nasdaq: WIBC ) emerged through the downturn in strong shape as it steered clear of the mortgage lending mess. But two years on, loan portfolio troubles have emerged. The number of non-performing loans is on the rise, forcing Wilshire to take a one-time charge that will lead to a second-quarter loss. That's pushing shares down -9% in Friday trading.

Wilshire is in strong financial shape, and its investors need not fret that the bank is a candidate for an FDIC rescue. But the sudden and sharp deterioration in its loan portfolio is likely to lead investors to make fresh assumptions about the broader banking sector. Many had assumed that the economy would be in growing at a decent clip for the rest of the year, but since economists have recently suggested that growth will be slow, or even negative, seemingly healthy banks may once again have to keep a close watch on their loan portfolios. Of additional concern, many banks may continue to keep very tight in their lending standards, making it hard for small and medium-sized businesses to borrow.

Action to Take --> This is still about just one bank, and it may be premature to extrapolate the rising loan losses at Wilshire to the broader banking sector. But with earnings season just a few weeks away, investors need to take heed of what other regional banks have to say.

Investors should steer clear of Wilshire's shares until the credit environment improves, but it's worth noting that even with today's sell-off, shares are above tangible book value of $6.71. If loan losses continue, book value may settle at around $6.50. Shares may move lower toward that mark in coming weeks or months.


Frontier's Risky Gambit

Verizon (NYSE: VZ ) , the nation's largest phone company, had been seeking a buyer for a large swath of its customer base that exists outside its core Northeast U.S. market. Few takers appeared, until Frontier Communications (NYSE: FTR ) stepped up to the plate last year. But the deal was so large that Frontier needed Verizon's help to pay for it. So the two firms struck a complex arrangement whereby Verizon would own 68% of Frontier, and Frontier would need to borrow another $3.3 billion.

After a deep look from regulators, the deal finally closed on Thursday, and investors initially embraced it, pushing shares up nearly +8%. Now, they're having second thoughts, pushing shares back down nearly -4% on Friday. As well they should. This appears to be a high-risk/low-reward scenario for Frontier. The telecom operator is banking on demand for wireline phone services to stay flat, even though they have been falling for quite awhile.

Of course, Frontier can count on the Internet-access business that many customers rely on phone companies for these days. Trouble is, the cable operators are fierce competitors for Internet access, and coming plans for high-speed wireless access may put the wireless service operators in the Internet access business as well.

Action to Take --> In a worst case scenario, Frontier will choke on that debt. In a best-case scenario, the company will muddle along with slowly falling cash flow as those competitors steadily take market share . Don't let that 14% dividend yield fool you. A yield that high tells you that it's bound to be cut, otherwise investors would have been flocking to this stock. Verizon was the lucky one here as it raises $3 billion while letting Frontier's shareholders assume some of the risk of this declining business.


Lincare gets dragged into the Amedysis Mess

We told you Thursday that the home health care providers are coming under scrutiny from both the Securities and Exchange Commission ( SEC ) and Congress. Shares of Amedysis (Nasdaq: AMED ) were among several that plunged at the start of Thursday trading, but rebounded later in the session. But they're back down -6% in Friday trading.

In today's session, Lincare Holdings (Nasdaq: LNCR ) has joined the sell-off, falling nearly -9%. Lincare, which as we noted a few weeks ago provides oxygen and other respiratory services to the homebound, may also be coming under scrutiny. Early in the last decade, Lincare was investigated for questionable billing practices, and ultimately had to pay some hefty fines.

Action to Take -->
As we write this, we have yet to confirm that Lincare is being investigated. But we do know that home health care services have been targeted by the Obama administration as a source of health care savings. Lincare recently initiated a new dividend , but its yield wasn't high enough to attract investor support in the event of a sell-off. While the home care business is in the spotlight, it's best to avoid their shares.

-- David Sterman
Staff Writer

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

This article appears in: Investing Stocks
Referenced Stocks: AMED , FTR , LNCR , SEC , VZ , WIBC

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