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Citadel Sells 27.4M Shares of E*TRADE, Time to Get Bearish or Time to Buy?

Citadel Sells 27.4M Shares of E*TRADE, Time to Get Bearish or Time to Buy?

E*TRADE Financial (NASDAQ: ETFC) has taken a hit after the company announced a 27.4 million share secondary offering after the close Wednesday, but will it remain down today?

The offering, which was offered by its affiliate Citadel, reportedly sold out in roughly eight minutes despite the pricing having not yet been released to the public.

Citadel's stake, which accounted for 9.6 percent of the float on E*TRADE, was expected to close on March 19th.

Following the news, Bank of America released a report stating it expected shares to be weaker in the near term, based mostly on the negative sentiment stemming from its top shareholder selling its stake.

Furthermore, the report remained bearish on the grounds that no near term catalysts existed with approval for capital deployment and possible strategic sales not possible in the near future.

The firm maintained its Underperform rating on the company and its $10 price objective.

Keefe Bruyette & Woods also weighed in on the company, downgrading it to an Underperform rating with a $10 price target.

The downgrade used the offering as a catalyst, saying that while the offering would dilute share prices, E*TRADE will not receive any proceeds from the sale, and thus it was a net negative.

The offering represents 6.9 times the company's 30-day average daily volume, and will flood the market with liquidity.

Later on the report said the downgrade saw a material drop following the offering, but with shares currently inflated over 30 percent above the company's price target, it expects there to be further downside in the near future.

CNBC noted Thursday morning that the relationship between Citadel and E*TRADE was rocky as of late, so the sale did not come as much of a surprise.

The stock has been on a wild rally since mid November, gaining over 32 percent in the last three months alone, and the RSI has plummeted today, careening towards oversold territory.

Despite this, the company's forward P/E of 17.91 is less than appealing, while its declining quarter over quarter sales are also a worry.

If you're bullish on this stock, the dip here presents a fantastic buying opportunity, but with the additional liquidity and vote of no confidence given by Citadel, things seem to be getting pretty bearish for the time being.

Shares of E*TRADE fell 6.43 percent to $11.06 midway through the morning Thursday.


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