The Federal Housing Finance Administration on Wednesday ordered mortgage giants Fannie Mae (FNM: 0.35, -0.08, -18.60%) and Freddie Mac (FRE: 0.40, -0.11, -21.55%) to delist their shares from the New York Stock Exchange, driving the share prices of the long-troubled guarantors of most mortgages below $1. The two firms could soon have plenty of company.
The market downturn and the changing tide of the economy triggered or accelerated the declines of several publically-traded marquee companies. Now, shares of some firms that once traded among the more expensive stocks are available to retail investors for less than the price of a cup of coffee. And like Fannie and Freddie, some face the prospect of being delisted.
For Fannie and Freddie, Wednesday's delisting order and the drop in their shares were only the latest bits of bad news. In September 2008, the so-called government sponsored entities were seized by the Treasury Department, which ousted their top management in a bid to stabilize the teetering housing market. They're still active as loan guarantors, but FHFA Acting Director Edward J. DeMarco said the two companies' shares had hovered around the NYSE's $1 delisting threshold for long enough to warrant action. He added that the firms’ delistings did not reflect their “current performance or future direction.”
Generally, the New York Stock Exchange and the Nasdaq require company shares to trade at $1 or more, and maintain a minimum number of shares at a certain market capitalization rate – the total value of all outstanding shares. The Nasdaq requires its companies to maintain 750,000 public shares outstanding at a total market cap of at least $5 million. The NYSE requires shares to stay above $1 for 30 days, then gives companies six months to boost their value. Although both exchanges have waived those requirements at various points during the ongoing financial crisis, they continue to drop names from their rolls. Shares of companies delisted from the NYSE and Nasdaq generally then trade on the Over-the-Counter Bulletin Board, which has much less stringent regulatory requirements, offering investors less security.
Even with the more flexible climate on listing requirements, a recent stock screen turned up 150 companies whose shares are $1 or less, making them prime delisting prospects. Here's a look at five more companies on the cusp.
Trico Marine Services
Trico (TRMA) supplies boats for moving drilling materials, supplies and crews for offshore drilling rigs, and investors don’t see business looking up. The company saw its shares slide below $1 on June 10.
Among the companies in our screen, Trico had the biggest fall from its 52-week high of $9.47 a share. The April 22 spill in the Gulf of Mexico wasn’t the blow that pummeled the price (80% of the company’s business is in Norway and the North Sea), though it certainly didn't help the sector.Analyst Amer Tiwana of CRT Capital Group said the company's missed May 17 payment on bonds it issued to cover $1.1 billion worth of acquisitions in the last two years dims its chance for recovery. "It's a good business, but they probably overpaid" for their expansion, he said. "It is an overleveraged capital structure."
Trico conceded the severity of its troubles in a Monday filing with the Securities and Exchange Commission in which it warned it might have to declare bankruptcy. "Without additional liquidity we expect to have little or no liquidity to operate our business," the Houston-based company said.
Blockbuster
Blockbuster (BBI: 0.29, +0.01, +3.57%) shares last traded above $1 on Oct. 23, and analysts say they reflect the decline of a company that's been bypassed by technology and more nimble competition.
The video rental chain has lost ground in the marketplace since 2003, when mail-order DVD rental outfit Netflix (NFLX: 126.42, +0.56, +0.44%) notched its millionth customer and the notion of driving to a brick-and-mortar movie rental store was growing increasingly outdated. By the time Blockbuster responded with its own mail-order DVD business in 2004, many observers thought it was too late even then. The company closed stores, tried to compete with streaming video offerings on demand and waived late fees. It's now losing share to DVD rental vending machines from Redbox, which charges $1 and offers mostly new releases from its kiosks, located in Wal-Mart (WMT: 51.55, +0.14, +0.27%), McDonald's (MCD: 69.88, -0.17, -0.24%) and other pharmacies, grocery stores, and convenience store outlets."The simple story is that they sequentially ran into competitors that had better business models and they were not able to adapt," says Wedbush Morgan analyst Michael Pachter.
The Wall Street Journal reported Saturday that Blockbuster could be forced into Chapter 11 bankruptcy protection so it can restructure about $900 million in debt. The paper said the company is negotiating with bondholders for up to $150 million in so-called debtor-in-possession financing that would allow it to operate if it goes into Chapter 11.
Pachter says the combination of expensive real estate and the eightfold nationwide expansion of Redbox kiosks to 25,000 will ultimately close the curtain on the movie rental chain. "I don’t think they can make it," he says. “Current management got there in 2007, and I think it was too late even then."
YRC Worldwide
YRC Worldwide (YRCW: 0.23, +0.00, +0.00%) is a holding company for a portfolio of freight and moving companies. Shares hit the sub-$1 skids Jan. 15, as the operator of the YRC, YRC Reimer, YRC Glen Moore, YRC Logistics, New Penn, Holland and Reddaway brands got double-clutched by inefficient post-merger integration and the prolonged recession. The housing crisis cut down on moves, and sharp cutbacks in retail sales and inventory put the brakes on freight shipments. A December crucial debt-for-equity swap steered YRC away from bankruptcy, and on Monday the company said it would have positive earnings for its second quarter after a long string of losses.
"We continue to see positive developments in our business as our June volume trends are exceeding our May volume trends," Chairman, President and CEO Bill Zollars said in a prepared statement.The troubled company that could rev out of its trough, said Wall Street Strategies analyst David Silver. "A lot of these acquisitions that they did in the last few years, they didn't fully integrate before the market took a dive," he said. "They had so much overlap and so much redundancy their costs just got really out of whack."
If YRC Worldwide can get enough liquidity, despite very tight credit conditions, the combination of tighter management, union cost concessions and a pickup in shipping demand could complete a rough U-turn for stockholders.
"Their problems aren't solved, but I don't think they're going to go bankrupt," Silver said. "They've done all they can do to improve in such a difficult market. We've seen pockets of improvement but the trucking industry overall remains weak."
PremierWest Bancorp
Shares of PremierWest (PRWT) first dropped under $1 in late January as the Medford, Ore.-based regional bank suffered from problems similar to those of many of its peers. Loan losses from the faltering construction industry and rising mortgage defaults continued the squeeze, said Jeff Rulis, an analyst at D.A. Davidson & Co. A successful $33 million secondary share offering on April 7 staved off more serious trouble, but dropped shares back below $1.
For the year to date, 81 banks have failed and been seized by the Federal Deposit Insurance Corporation, a pace well ahead of the 140 bank failures of 2009. That was the highest total since 1982."Our peer banks are seeing similar strains, and some that were worse off are not around anymore," Rulis said. The share offering "gives them a fighting chance. It's still a risky situation, but I wouldn't say it's decidedly going one way or the other right now."
The company’s April 22 results for the first three months narrowed its losses to 10 cents a share from 16 cents a share the previous year. PremierWest lost $4.47 a share in the final quarter of 2009.
ThermoGenesis
Shares of this stem cell technology and storage company haven't traded above $1 since Nov. 4, 2008. ThermoGenesis (KOOL: 0.59, -0.01, -1.66%), which is based in Rancho Cordova, Calif., on Friday said it would seek shareholder approval for a reverse stock split to remain listed on the Nasdaq. The vote, scheduled for Aug. 9, is an extreme, but not uncommon aspect of investing in the biotech sector, which offers investors far more big misses than huge successes.
Steve Brozak, president of WBB Securities, a biotech equity research firm in Westfield, N.J., says ThermoGenesis isn't a so-called "zombie biotech," a company that limps along with little hope for revival after a failed drug development trial or other clinical setback. He says ThermoGenesis still has potential to succeed, but that the entire sector remains rife with investor hazards: Drugs and technologies must be designed, then tested, then subject to regulatory approval and there's uncertainty at every step. "You never know what's going to happen," he says of companies with products in the pipeline. "It’s a roller-coaster ride on steroids for investors."
Shares of this stem cell technology and storage company haven't traded above $1 since Nov. 4, 2008. ThermoGenesis (KOOL: 0.59, -0.01, -1.66%), which is based in Rancho Cordova, Calif., on Friday said it would seek shareholder approval for a reverse stock split to remain listed on the Nasdaq. The vote, scheduled for Aug. 9, is an extreme, but not uncommon aspect of investing in the biotech sector, which offers investors far more big misses than huge successes.
Steve Brozak, president of WBB Securities, a biotech equity research firm in Westfield, N.J., says ThermoGenesis isn't a so-called "zombie biotech," a company that limps along with little hope for revival after a failed drug development trial or other clinical setback. He says ThermoGenesis still has potential to succeed, but that the entire sector remains rife with investor hazards: Drugs and technologies must be designed, then tested, then subject to regulatory approval and there's uncertainty at every step. "You never know what's going to happen," he says of companies with products in the pipeline. "It’s a roller-coaster ride on steroids for investors."
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