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Wednesday Losers: Allied Irish Banks, Whitney Holdings and Lexmark
By: David Sterman
|Top Percentage Losers --Wednesday, July 14, 2010|
|Company Name (Ticker)||Intra-Day Price||
|52-Week High||52-Week Low|
|Allied Irish Banks
( AIB )
|Lexmark ( LXK )||$33.15||-5.3 %||$42.14||$14.23|
*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 11:45AM Eastern Standard Time . Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.
More Distress in Ireland
Ireland's two largest banks, the Bank of Ireland ( IRE ) and Allied Irish Banks ( AIB ) , are both shedding roughly -6% today on concerns that neither bank would fare well in a stress test. Those are tests by bank examiners to see if a bank could withstand a range of negative economic scenarios and still keep its capital base intact. Similar fears dogged U.S. banks in late 2008, although all major U.S. institutions ended up passing their tests.
The tests are not intended to highlight potential bankruptcy concerns. But they could lead regulators to force these banks to shore up their capital bases by injecting fresh capital. Allied Irish Banks has already begun the process of capital-raising, but may have a hard time raising the $9.4 billion it thinks it needs to withstand any further scrutiny. Bank of Ireland is in a better financial situation after a recent capital raise, but would be dragged down by a yet-weaker Irish economy were Allied Irish Banks to struggle.
Action to Take --> It's important to remember that U.S. bank stocks rallied sharply after the stress tests were completed. These Irish banks are very inexpensive by a wide range of metrics, and will eventually be bid up by investors or a strategic acquirer. But investors should wait these tests out anyway, as the headlines are likely to remain daunting for at least a little while longer.
The economic impact of the Gulf Cost spill is starting to be noted in public company results. Whitney Holdings (Nasdaq: WTNY) , which operates a network of banks in Florida, Louisiana and Texas, has just boosted its estimate for delinquent loans, which will result in a large second-quarter charge. That's pushing shares down more than -14% in Wednesday trading. The bank also notes that Florida real estate trends also remain very weak, and loan delinquencies remain high.
We've seen very little pre-announcement activity from companies that derive a solid chunk of business in the Florida panhandle and Louisiana. But it seems inevitable that this region will see a sharp slowdown in business activity throughout this summer. At the margin , it will negatively impact any national retailers or restaurant chains that have a number of franchises in the area. Shares of Whitney Holdings now trade right at tangible book value , which will be a catalyst for shares down the road, once loan losses are coming back down.
Action to Take --> Whitney's management will hold a conference call in two weeks to provide greater detail about the regional economic slowdown. It will be a worthwhile call for anyone invested in this area.
Lexmark Stalls Out
Shares of printer maker Lexmark ( LXK ) are off sharply after Morgan Stanley slashed estimates and lowered its rating to "underperform." Analyst Caty Huberty sees competitive headwinds brewing, and now thinks that profits will be flat in 2010, 2011 and 2012. Shares of Lexmark had been rising throughout the past year, in part due to supply constraints at printer rival Hewlett-Packard ( HPQ ) . Hewlett-Packard has resolved its internal manufacturing issues, and now looks to take back lost market share .
This is a very low-growth industry, especially when you consider that office workers are looking to print less of what they read online. Although Lexmark may see modest growth this year, it's worth noting that sales had fallen in each of the last five years, a trend that may well resume once again in 2011.
Action to Take --> Half of Lexmark's stock price is now accounted for in its cash balances. And management will likely keep doing the only thing it can: buy back stock. The share count has shrunk from 133 million in 2004 to a recent 79 million. At some point, another tech firm will swoop in and buy this company's still-prodigious cash flow streams. But for now, shares are dead money.
-- David Sterman
David Sterman has worked as an investment analyst for nearly two decades. He started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and has made numerous media appearances over the years, primarily on CNBC and Bloomberg TV. David has a master's degree in management from Georgia Tech. Read More...
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.StreetAuthority