E-Trade expected to report 2Q loss on Wednesday

DES MOINES, Iowa -- Some analysts have taken a brighter view of E-Trade Financial Corp. stock after it completed a debt restructuring and raised additional capital, but some say the online brokerage is headed for an acquisition or bankruptcy protection.

Shares closed at $1.29 on Tuesday, the day before the company was to report second-quarter results. Shares have traded between 59 cents and $4.05 in the past 52 weeks.

Analysts polled by Thomson Reuters expect a loss of 31 cents a share for the second quarter

In a June 24 note to clients, Raymond James analyst Patrick O'Shaughnessy upgraded the company's stock to "Market Perform" from "Underperform", saying downside risk is limited.

Shares were trading at nearly $2 as recently as June 12 but fell to $1.19 by June 22 and have hovered between $1.20 and $1.30 in recent weeks.

A recent share offering and a debt restructuring eliminate the threat of insufficient regulatory capital and concern over excessive interest payments. Improving delinquency trends in the loan portfolio also suggest that the worst may be in the rearview mirror, he said.

Investors will now turn their attention away from the company's survival and toward its end game, which could be an acquisition by a competitor, O'Shaughnessy said.

FBR Capital Markets ( FBCM - news - people ) analyst Mark Snowling upgraded Etrade to "Outperform" from "Underperform" in June to reflect its more attractive risk/reward.

"Although we expect mortgage-related losses to remain elevated, we believe the worst is now behind E-Trade, as the nearly $2 billion of fresh equity capital at the company should alleviate regulators concerns and take the worst-case scenario off the table," he said. "As a result of still strong fundamentals, good cash flow, and increased probability of becoming an acquisition candidate, we believe patient investors will be rewarded for stepping into (E-Trade) at current levels."

He raised his 2009 earnings estimate to a loss of 48 cents from the previous 62-cent loss, which largely reflects the increased share count and reduced interest expense.

He also raised his 2010 estimate on the company to 1 cent from previously expected flat earnings.

Snowling's price target is $2.

Fox-Pitt Kelton analyst David Trone in an investor note last month upgraded E-Trade to "In Line" from "Underperform".

He reduced his 2009 estimate per-share estimate to an 81-cent loss from a 64-cent loss and 2010 to 20-cent loss from 7 cents.

"We continue to firmly believe that E-Trade will be bankrupt or sold by midyear 2010, with the latter now looking more likely," he said.

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