Stifel Nicolaus & Co. analyst Christopher C. Brendler is telling investors to sell Advanta Corp. shares (now trading below $1) as the company is caught between higher borrowing costs and lower revenues.
Brendler recommended Advanta last October as a low-priced bargain stock. But this morning he told investors the company's latest data show rising credit card losses and falling card income have doomed the company to bankruptcy. Advanta employs around 700 at its Spring House and Horsham offices.
"The catalyst for our about-face is much-sharper-than-expected credit deterioration in December," Brendler wrote, citing new data from Advanta. 30-day delinquencies rose to 9.4%, from 8% in November. Net losses rose to nearly 13%, from 12%, also in one month.
Things will get worse, Brendler wrote, as falling interest rates cut Advanta's loan income -- and investors who finance the company demand their money back: "Early amortization appears unavoidable without a significant improvement in credit quality and that appears highly unlikely in this macro environment. With over $4 billion in outstanding bonds, even Advanta's substantial cash hoard will likely prove insufficient and we believe the company will be forced into bankruptcy if the trust does indeed amortize early.
"Since we now believe Advanta will no longer be able to survive, we are forced to cut the stock to Sell."
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