Tuesday, August 15, 2006

Calls of Note Part 4

- Friedman, Billings, Ramsey adding Accredited Home Lenders (NASDAQ:LEND) to ther Top Picks list, asthey believe the recent sell-off is overdone and current price levels offer a potentially attractive investment return. Firm notes their reasoning is supported by tandem beliefs that LEND will continue to have one of the most profitable mortgage banking platforms in our coverage universe, despite the expectation of a deteriorating margin as a result of the strategy shift, as well as one of the most conservative management teams.

Firm recognizes that earnings visibility will be limited in the near-term, given the AIC acquisition and the implementation of the new pricing strategy; however, they believe that there is the potential for significantly higher earnings in '07 due to the accretive nature of the AIC acquisition. Over the course of the past week, the shares have sold off approximately 25%, making current levels an attractive entry point. With the shares currently trading at 1.1x book value, their lowest valuation in the company's history, and supported by recent M&A transactions, the firm reiterates their Outperform rating and $42 price target.

Recent transactions support valuation. Despite the strategy shift, they expect LEND to maintain leading profitability and excellent credit performance, while possessing both attractive origination and servicing platforms. Notes SAX, which is less profitable but possesses both servicing and origination platforms, recently sold for an estimated 1.2x book value.

Notablecalls: Expect to see a bounce in LEND. Don't overstay your welcome.

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