Green Dot Corp., an issuer of prepaid debit cards, jumped Wednesday after an analyst upgraded the company, saying traders have been too pessimistic about its prospects.
THE SPARK: Green Dot's share price has plunged 53 percent since the company announced weak earnings and slashed its guidance on July 25, Piper Jaffray analyst Michael Grondahl said in a research note.
He said traders have overreacted, ignoring the profits Green Dot will likely gain from new partnerships that begin in the next six to 12 months. Grondahl upgraded Green Dot to "overweight" from "neutral."
THE BIG PICTURE: Green Dot shares fell off a cliff on July 25 after the company reduced its outlook for 2012, saying it has become harder to strike exclusive partnerships with retailers. When retailers agree to carry Green Dot's prepaid debit cards and no others, people are more likely to buy them, continue using them and add more money to them, Grondahl said.
The stock had been trading between $20 and $25. After the announcement, it fell to around $10.
THE ANALYSIS: Green Dot is set to launch a number of products that will boost its earnings, Grondahl said. He said Wall Street's estimates ignore these deals.
In the next year, Green Dot expects to begin partnerships with Sallie Mae, the student lender; discount retailer Dollar Tree; and Rush Card, the prepaid card company founded by hip hop mogul Russell Simmons.
Green Dot is trading so low that it would be a good value even in a very tough market, Grondahl said. He said it is possible that management will buy back some shares, boosting the value of those remaining in the market.
SHARE ACTION: Green Dot rose 67 cents, or 6.1 percent, to $11.75 as of midday. They had fallen as low as $9.05 on July 27. They traded as high as $36.59 in mid-September 2011.