The Zacks Analyst Blog Highlights: General Mills, JPMorgan Chase, Bank of America, Citigroup and The Goldman Sachs Group

Zacks Equity Research

For Immediate Release
 
Chicago, IL – September 18, 2013 – 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 the General Mills Inc. ( GIS- Free Report), JPMorgan Chase & Co. ( JPM- Free Report), Bank of America Corporation ( BAC- Free Report), Citigroup, Inc. ( C- Free Report) and The Goldman Sachs Group, Inc. ( GS- Free Report)
 
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Here are highlights from Tuesday’s Analyst Blog:

Can General Mills (GIS) Beat Earnings?
 
General Mills Inc. ( GIS- Free Report) is set to report its first-quarter fiscal 2014 results on Sep 18 before the market opens. Last quarter, it posted a 1.9% negative surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Though General Mills expects stronger earnings growth in fiscal 2014, we believe that the first quarter could be a little tough due to soft overall volume trends and recent negative momentum in the food sector. For General Mills, especially, two of its most important categories – cereals and yogurt – are showing sluggish results.

Though the company is making an effort to re-invigorate their growth, the results are not expected to benefit the top line in this quarter. However, cost savings and lower commodity cost inflation could prove to be tailwinds which are expected to be partially offset by higher advertising costs.

Earnings Whisper?
Our proven model does not conclusively show that General Mills is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Earnings ESP) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Negative Zacks ESP:  The Earnings ESP is -1.43%.

Zacks #3 Rank (Hold): General Mills carries a Zacks Rank #3 (Hold) which lowers the predictive power of ESP because a Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

JPMorgan to Settle “London Whale” Probe

JPMorgan Chase & Co. ( JPM- Free Report) is soon expected to start resolving probes related to its ‘London Whale’ trading debacle. The company will likely pay a penalty in the range of $700–$800 million and also plead guilty.

JPMorgan’s ‘London Whale’ settlement will be with the U.S. regulators – the Securities and Exchange Commission (:SEC), the Federal Reserve and the Office of Comptroller of the Currency – and the U.K.’s Financial Conduct Authority. However, chances of the overseer of derivatives market, Commodities Futures Trading Commission’s (:CFTC) inclusion in the settlement are less.

The CFTC is probing whether JPMorgan’s trading desk manipulated a credit default index – IG9 – at the time of trading credit derivatives, which led to trading losses of approximately $6.2 billion.

The settlement will end the probe being conducted by the U.S. and the U.K. regulators. JPMorgan is currently being investigated on whether it disclosed the correct amount of losses in the ‘London Whale’ derivative trades to investors and regulators. The company’s risk control program is being questioned as well.

Further, the admission of wrongdoing will likely open up legal ways for investors to seek compensation for a fall in JPMorgan’s share prices following the ‘London Whale’ trading fiasco. This is expected to add more legal headwinds for the company. Nevertheless, management has tried to make amends by acknowledging its responsibility for the actions as well as by restating the first-quarter 2012 results.

Despite JPMorgan’s plans to end the probes, the Department of Justice (:DOJ) is going ahead with its criminal case implicating two of the company’s former traders of conspiracy, fraud and making false SEC filings related to the ‘London Whale’ trading losses. Another former employee – Bruno Iksil – is cooperating with the investigators and has not been charged criminally.

The resolution of the ‘London Whale’ debacle will remove a major legal headwind for JPMorgan. However, the company, along with many other major banks such as Bank of America Corporation ( BAC- Free Report), Citigroup, Inc. ( C- Free Report) and The Goldman Sachs Group, Inc. ( GS- Free Report) continues to face various mortgage related investigations and lawsuits.

Recently, at the Barclays Global Financial Services Conference, JPMorgan stated that it would incur additional legal cost of more than $1.5 billion in the third quarter. Notably, at the end of second-quarter 2013, the company increased its anticipated legal losses (exceeding its existing litigation reserves) to $6.8 billion from $6.0 billion in the prior quarter.

Currently, JPMorgan carries a Zacks Rank #3 (Hold).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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