Markets & Finance

Keefe Bruyette Downgrades CapitalSource

CapitalSource (CSE) posted second quarter EPS of 39 cents. Keefe Bruyette downgraded the shares to underperform from market perform.

Analyst Stephen Schulz says second quarter EPS were 3 cents ahead of his forecast, and the Street estimate, helped by a one-cent reserve release, and a 2-cent gain on sale of equity investment. But he notes, once again, results were marred by deterioration in credit metrics. Schulz does not believe risks of increased losses are being adequately recognized by the market and feels it necessary to consider implications for general reserve levels and loan growth. he cut his $1.83 2006 EPS estimate to $1.64, reflecting an increase in losses, additional reserve build, and a reduction in loan growth. He cut his $23 price target to $18.

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