Online-Brokerage Downgrade Trips Up Net Stocks

A Lehman analyst cuts his ratings on E*Trade and Ameritrade, and the stocks slip some 7%.
Author:
Publish date:

Net stocks, looking to end the week on a high note, were humming a flat tune Friday morning after a Wall Street analyst downgraded a pair of widely held online-brokerage issues.

TheStreet.com Internet Sector

index was down 4.19, or 0.5%, at 572.26, a far cry from the 584.14 session high made at the open. The DOT reached a high of 602.05 on Thursday and

technicians would like to see a close above that level to sustain enthusiasm in the sector. Net stocks have also been keying off Treasuries, which were higher today, keeping Net stocks off balance.

Online brokerages were on the defensive after

Lehman Brothers

analyst Richard Repetto downgraded both

Ameritrade

(AMTD) - Get Report

and

E*Trade

(EGRP)

to outperform from buy. Ameritrade was down 1 5/8, or 7%, at 21 1/8 and E*Trade was down 2, or 7%, at 25 3/4.

Repetto wrote that "the risk going forward has increased with the first signs of account-acquisition costs rising and potentially the effects of increased competition impacting the business models of pure-play online brokers." He noted that Ameritrade was currently valued at $7,900 per account, while E*Trade was valued somewhere between $6,900 and $7,400 per account. And while he noted that both stocks have been valued at twice that much in the past, it was "still well more than 10 times what we calculate an account will generate" based on his analysis.

TSC

online brokerage reporter

Caroline Humer

examined the new metrics in rating the brokerages in a

piece last week.

Among the bellwethers,

Amazon.com

(AMZN) - Get Report

was off 3 5/16, or 2.6%, at 125 1/4;

Yahoo!

(YHOO)

was down 3 13/16, or 2%, at 149 7/8; and

eBay

was down 2 11/16, or 2%, at 125 3/4.

Also,

Intuit

(INTU) - Get Report

was up 6 1/4, or 7.5%, at 89 1/8 after reporting better-than-expected earnings after the close Thursday.

Credit Suisse First Boston

analyst Lise Buyer upgraded the maker of personal-finance software to strong buy from buy. Intuit posted a fiscal fourth-quarter loss of 26 cents a share, better than the 11-analyst estimate of a loss of 33 cents but swinging from the year-ago profit of 3 cents.

In his weekly Web report,

BancBoston Robertson Stephens

analyst Keith Benjamin remained positive on the Net sector, saying he would "continue to add to existing positions and broaden our list of purchases." He believes investors "will continue to favor the largest franchises, particularly those already demonstrating profitability," though he noted that "there is increasing appreciation of the leaders in smaller categories with business models that can turn profitable faster."