Shares of AmeriCredit Corp. of Fort Worth, Tex., failed to recover Monday from last weeks 12.3% selloff, but analysts say the specialty finance company is in good shape, and fears about its lending portfolio are overblown.
AmeriCredit, which specializes in subprime and auto loans, was hit by investors after Bank of America Corp. decided on Wednesday to sell its auto leasing line and some subprime business lines. Other specialty finance companies stocks also suffered, but not as much as AmeriCredits. Moshe Orenbuch, an analyst with Credit Suisse First Boston Corp., wrote in a note to investors that Bank of Americas decision should not have affected AmeriCredit. Leases are very different from lending, and AmeriCredit, which is not involved in leases, therefore faces no residual value risk.
Fluctuation in car values was one of the major reasons Bank of America quit the leasing business, and the car loan market has been substantially less competitive than the car leasing market, Mr. Orenbuch wrote.
He reiterated his strong buy rating on Monday.
There may be concerns that the Bank of America action will result in fire sales of used cars and further depress recovery values for AmeriCredit, but Bank of America has said it plans to manage all its portfolio to maturity, which will take several years, he wrote. Therefore, we do not view this as having a negative impact on the ongoing used car market.
On Aug. 8 AmeriCredit had reported that profits were up 93% for its fourth fiscal quarter, which ended June 30, compared with a year earlier.
David Hochstim, an analyst with Bear Stearns & Co., said in a research note on Monday that he expects the company to continue such impressive earnings growth. Commenting on fears surrounding the now controversial area of subprime lending, he wrote that recent data published by AmeriCredit showed only a modest sequential increase in delinquencies. There was nothing in the data to cause us to change our credit expectations, wrote Mr. Hochstim, who reiterated his buy rating.
Robert G. Hottensen of Goldman, Sachs & Co., said fears about rising unemployment and a possible weakening of consumer credit quality are really what rattled the stock. It is important for investors to consider cyclical factors.
AmeriCredits profitability, risk management, balance sheet strength, and cash flows all continue to make the stock attractive, he said. After falling 7.5% on Friday and 16.6% since Wednesday, AmeriCredit ended Monday down 0.29%. The American Banker index of 225 banks was up 1.53%, and the Standard & Poors 500 index rose 0.81%.