The Zacks Analyst Blog Highlights: U.S. Bancorp, Goldman Sachs Group, PNC
Financial Services Group, Bank of America and Altera
CHICAGO, Dec. 6, 2012
CHICAGO, Dec. 6, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include U.S. Bancorp (NYSE:USB), Goldman
Sachs Group Inc.'s (NYSE:GS), PNC Financial Services Group Inc. (NYSE:PNC),
Bank of America Corp. (NYSE:BAC) and Altera Corporation (Nasdaq:ALTR).
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Here are highlights from Wednesday's Analyst Blog:
U.S. Bancorp to Up Repurchase Reserve
U.S.Bancorp (NYSE:USB) plans to boost its mortgage repurchase reserves in the
fourth quarter of 2012. The decision comes on the heels of Freddie Mac's
increase in its repurchase requests. The company conveyed this information to
investors at Goldman Sachs Group Inc.'s (NYSE:GS) financial services
conference yesterday, according to a Reuters report.
Government sponsored enterprises (GSEs) such as Freddie Mac and Fannie Mae
have already made repurchase demand on mortgages written between 2005 and
2008. However, last Friday, Freddie Mac informed lenders that it would
initiate repurchase demands on mortgages generated in 2004.
Therefore, to meet the increased repurchase demands, U.S. Bancorp deemed it
fit to beef up its reserve level. It would adversely impact its earnings by
one to two cents in the fourth quarter.
The Back Story
In the aftermath of the real estate market collapse in 2008 and the financial
crisis, mortgage and mortgage backed securities occupied a significant share
of the entire financial system. In several situations, the legitimacy of the
mortgages as well as the documents was questioned. The mortgage originators
did not exercise due diligence in several cases and also deliberately
When banks sell mortgage-backed securities to investors and GSEs, there is a
clause that can force a bank to buyback the securities in the event of
fraudulent or faulty underwriting or origination of the underlying mortgage.
Therefore, in cases of fraudulent and faulty origination documents, the holder
of the mortgage-backed securities demands buybacks from the seller of the
In fact, a number of Wall Street Big banks have suffered severe losses for
costs associated with such activities. PNC Financial Services Group Inc.
(NYSE:PNC) and Bank of America Corp. (NYSE:BAC) too have experienced increased
demands for mortgage repurchases from the GSEs.
Currently, U.S. Bancorp is expected to report earnings of 75 cents per share
in the fourth quarter. Though this elevation in repurchase reserve would
slightly hurt the company's earnings in the fourth quarter, we believe that
given its solid financial position, the company can efficiently handle this
mortgage repurchase issue and make adequate reserves.
U.S. Bancorp also boasts an attractive core franchisee and diverse revenue
stream that helped it achieve strong performance in the past years. Solid
capital position and increase in lending activities augur well. Yet,
regulatory issues along with the expectation of a continued low interest rate
environment are likely to limit the stock's upside potential in the upcoming
Currently, U.S. Bancorp shares maintain a Zacks #2 Rank, which translates into
a short-term Buy recommendation. As the repurchase issue is expected to impact
the company's earnings, downward estimate revisions might surface in the near
term and affect the Zacks Rank.
Altera Trims Outlook, Shares Fall
Chipmaker Altera Corporation (Nasdaq:ALTR) recently trimmed its revenue
guidance for fourth quarter 2012 and updated its financial guidance for 2013.
Altera now expects revenue to be 8% to 10% lower than the third-quarter
levels, compared to the previous guidance of down 6% to 10%.
This translates into revenues of $445.5 million – $465.3 million, down from
the previous estimate of $455.4 million – $465.3 million.
The solid growth in new products will be more than offset by lower sales of
the company's existing products.
Meanwhile, for 2013, gross margin is targeted around 69% – 70%. Research and
Development is estimated at approximately $104 million, driven by increased
variable compensation expense and stock-based compensation. SG&A is likely to
come around $315 million on the back of variable compensation for bonus, sales
commission and stock-based compensation.
Other Income/Expense is projected at $1 million. Tax rate is expected to be
13%. Capital expense is expected to be $65 million.
Earlier, Altera reported a net income of $157.5 million or 49 cents per share
in the third quarter of 2012, easily beating the Zacks Consensus Estimate of
46 cents per share.
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