Analysts React To Lifelock's 50% Decline On Tuesday

Shares of

on Tuesday plunged more than 50 percent after the

said that the company allegedly violated a 2010 settlement with the agency and 35 state attorneys general by making deceptive claims about its identity theft protection services. Lifelock responded in a statement and said that it has been cooperated with the FTC for the past 18 months and the company disagrees with the substance of the FTC's contentions and will take its case to court. Here is a summary of what three of Wall Street's top analysts are saying.

Josh Beck of Pacific Crest commented in a note that he previously expected a legal settlement to be reached between Lifelock and the FTC. As such, the situation holds the potential to reach the courts which adds "incremental risk" as investor focus will shift away from the company's "attractive customer lifetime value." Bottom line, with "limited visibility" into a potential court outcome prompts a downgrade to Sector Weight from Overweight with a "fair price" valuation of $8 (representing a 50/50 mix of a bear case $3 valuation and bull case $13 valuation) from a previous $18.

Dan Bergstrom of RBC Capital Markets commented in a note that the FTC's claims "seem centered on past actions and not current business practices." However, the analyst added that he would like to have "more visibility" into the potential liability and any changes this would bring to the operational model. Bergstrom also noted that the company is operating in an environment that is "as good as it gets" and the timing of the FTC statement is "unfortunate." As such, investors will now focus more on the "unknowns and unknown time-line" of the court case rather than the company's fundamentals. Shares were downgraded to Sector Perform from Outperform with a price target lowered to $11 from a previous $20.

Rob Breza of Wunderlich commented in a note that investor sentiment will shift towards an attitude of "what do we know" while also interpreting and speculating "what we don't know." Breza also noted that the company has built itself a "strong brand equity" but the FTC allegations could "materially impact" its reputation with consumers and result in additional expenses for a new marketing approach. In the near-term, the impeding court case "will slow the pace of gross new member" additions and reduce the retention rate. Breza did point out that the company is expected to have approximately $325 million in cash at the end of the June quarter which will provide "plenty of liquidity." Nevertheless, shares were downgraded to Hold from Buy with a price target lowered to $9.25 from a previous $20.