GE Capital must be very happy that most Wall Street analysts don’t have a clue how to value the companies they follow. On 10/30 they announced a deal to buy Trustreet Properties (TSY) for $17.05 per share in cash. Investors were rewarded nicely, as TSY investors are being paid a 36 percent premium to TSY’s closing price of $12.51 on 10/27.
Clients of Banc of America Securities, however, are far from thrilled. The investment bank initiated coverage of TSY in February with a “neutral” rating with the stock trading at $13.85 per share. By August the stock had dropped 17 percent and the analyst covering Trustreet, Ross Nussbaum, downgraded the stock to “sell” with the shares at $11.44 each. Oops.
Less than three months later, GE Capital swoops in and offers 49% more than where TSY was trading at the time of the “sell” recommendation. How these people keep their jobs baffles me. How can an analyst, whose sole job is to value public companies, be off by a whopping 50% when doing so? Clients who sold their shares at $11 and change must be fuming, as are those who shorted it after a rare “sell” call.
Meanwhile, smart value investors are smiling. The sell side analyst community continuously gives them gifts, like TSY at eleven bucks. GE Capital, too, must be thrilled that Mr. Nussbaum keeps his job despite being incredibly bad at it. After all, without so much analyst negativity, TSY shares might have been trading much higher, and GE Capital would have had to offer more than $17 to persuade Trustreet management to sell the company.
As usual, investors who listen to analysts get the worst of it. I know many of my readers are familiar with my advice to avoid paying attention to sell side analysts, and many of you do just that. Still, when things like this happen, I can’t help but mention them just in case some of you are suspect of my opinion.