Capital Source (NYSE:CSE) Positioned Strongly if Acquired

Although FBR Capital thinks reports that Capital Source (NYSE:CSE) has retained an adviser to prepare them to be acquired could be in order to test the waters, they add if the reports are confirmed, Capital would be able to approach it from a position of strength.

FBR says, "While we believe a sale of CSE is unlikely in the immediate future, given our view that the company is in the relative early stages of executing its long-term business plan to become a commercial bank with substantial upside remaining to the share price, banks are desperate for asset origination platforms in which CSE has a proven ability. While the several news reports, including those from Bloomberg and Reuters, claiming that CSE has engaged an adviser to explore options may be correct, we believe it could be to "test the waters" and gauge potential interest. Given CSE's strong capital levels, liquidity position and improving profitability, if the reports are accurate, we believe the company would be approaching this process from a position of strength. Should we be incorrect in our view and the company decide to sell, we believe the shares could be worth $8.50-$10.50 in a transaction. That said, we believe given the organic upside potential remaining in the business, we expect management would be unlikely to accept an offer in the lower end of the range."

FBR Capital maintains an "Outperform" rating on Capital Source, which closed Thursday at $7.65, up $0.32, or 4.37 percent.