Shares of SWS Group Inc. slipped in Wednesday trading after the investment and financial services company said it would sell 4.1 million shares of common stock.
Wall Street did not expect the announcement, made late Tuesday.
"We are surprised that the firm is raising common equity," wrote Keefe, Bruyette & Woods analyst Joel Jeffrey. He noted the stock price is "only slightly above book value," or the value calculated by subtracting liabilities and outstanding stock and bonds from total assets.
The company said it plans to use the proceeds from the stock sale for general corporate purposes "and to support continued growth or selective opportunistic acquisitions."
Jeffrey said SWS management has been interested in expanding its institutional and private client businesses. He estimated it will receive about $57 million in proceeds, and said the money will likely go toward continued recruiting or an acquisition. Some may also go toward providing a bigger cash cushion for its bank subsidiary.
Because the stock issue will dilute earnings per share, Jeffrey trimmed his estimates. For the company's fiscal second quarter, which ends in December, he now expects profit of 20 cents per share, down from 21 cents. On average, analysts surveyed by Thomson Reuters expect profit of 21 cents per share, with estimates ranging from 18 cents to 23 cents.
Jeffrey cut his full-year forecast to 74 cents per share profit, from 82 cents. The average estimate is 79 cents, with a range from 72 cents to 82 cents.
Shares of SWS Group fell as much as 6.4 percent before rebounding. In midday trading, the stock was off 2 cents at $12.66. The stock has changed hands between $11.77 and $19.29 in the past year.