Magazine article American Banker

Downgrades Hit Compass of Ala. after Profit Report

Magazine article American Banker

Downgrades Hit Compass of Ala. after Profit Report

Article excerpt

Shares of Compass Bancshares fell 3.88% on Friday after several analysts downgraded the Birmingham, Ala., company, which predicted that earnings per share will be less this year than previously predicted.

D. Paul Jones, chairman and chief executive officer of Compass, said in a conference call Thursday that investors should look for earnings of between $2.08 and $2.12 per share this year, rather than the $2.15 to $2.27 analysts had expected.

Compass' fourth-quarter per-share earnings of 50 cents missed the consensus of Wall Street analysts by three cents. Despite a welcomed 23% gain in noninterest income from a year earlier, an 8% increase in nonperforming assets and expenses surprised analysts.

The market reacted sharply to the news by sending shares of Compass down during afternoon trading on Thursday. The selloff continued Friday on another bleak day for bank stocks. Compass closed down 87.5 cents, to $21.6875.

The American Banker index of top 50 banks lost 0.65%, and the index of 225 banks fell 1.35%. The Nasdaq composite was up 1.93%, while the Standard & Poor's 500 index was dropped 0.4%.

"The magnitude of the downward guidance was surprising, particularly given how well Compass' earnings had been holding all year," wrote Marni Pont O'Doherty, an analyst at Keefe, Bruyette & Woods Inc., in a research note on Friday. She downgraded the stock to "market perform" from "outperform," and wrote that her action reflects "the lack of a compelling argument" for the stock to rise.

Jon Balkind of Fox-Pitt, Kelton Inc. lowered his rating to "hold" from "accumulate." Robert Patten of UBS Warburg also cut Compass to "hold" from "buy." Christopher M. Mutascio of Legg Mason Wood Walker Inc. downgraded the stock two tiers to "market perform" from "strong buy."

Mr. Patten said that Compass' management disappointed investors with its conservative guidance, and should the company fail to deliver results in line with its peer group in the future, it could become a merger target. …

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