NEW YORK (The Street) -- Troubled broker dealer RCS Capital Corp. (RCAP) may need to consider splitting itself up, according to a Citigroup analyst who has been both an outspoken critic of the company and champion of the stock.
New York-based RCS has seen its shares fall 78% over the past year amid accounting inquiries by the SEC and other regulators into a formerly affiliated company, American Realty Capital Properties Inc. (ARCP) The inquiries and a related lawsuit precipitated the resignation of Nicholas Schorsch from the chairmanship of both companies in December. RCS does not appear to be a focus of those investigations.
Citigroup analyst Bill Katz had called for Schorsch's resignation in a December 18 note. RCS announced Schorsch's resignation Dec. 30. In the lawsuit, former American Realty chief accounting officer Lisa McAlister accuses Schorsch of telling her and former CFO Brian Block to cover up accounting errors.
As RCS shares sold off amid the scandal, Katz turned bullish, adding them to Citigroup's "focus list" of most highly-recommended stocks throughout its coverage universe. The shares were at $10.90 when he upgraded them to "buy" with a $19 target price Dec. 16. (He later trimmed the target to $18 April 15.) On Friday afternoon they closed at $7.48. While coverage on RCS is quite limited, two of the three remaining analysts who follow the stock also recommend it.
Following earnings that missed estimates Thursday, Katz suggested on an analyst conference call with management that it might be "time to take bold action rather than just tactical cost savings to try and unlock value in the company."