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The Zacks Analyst Blog Highlights: JPMorgan Chase & Co., Bank of America Corporation, Citigroup Inc., Wells Fargo & Company and the Dow Chemical Company

Zacks Equity Research

For Immediate Release

Chicago, IL – November 16, 2012 – 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 JPMorgan Chase & Co (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C), Wells Fargo & Company (WFC) and the Dow Chemical Company (DOW).

Today, Zacks is promoting its ''Buy'' stock recommendations. Four daily picks are offered free.

Here are highlights from Friday’s Analyst Blog:

Foreclosures Continue to Wane


Signaling the gradual recovery in the housing market, the foreclosure market report released by RealtyTrac revealed a drop in the overall foreclosure activity in October 2012 on an annual basis. As per this leading online marketplace of foreclosure properties, foreclosure filings plummeted 19% from the last-year month but rose 3% from the prior month. This brought the aggregate number of properties receiving default, auction or repossession notices to 186,455.

Further, foreclosure starts – default notices issued and foreclosure auctions (depending on the state’s foreclosure procedure) – declined 19% from October 2011 but inched up 2% from September 2012 to 89,209 properties in the reported month. This was the 3rd straight monthly decline in foreclosure starts on a year-over-year basis. Yet, bank repossessions (REOs) plummeted 21% from the prior-year month and almost 1% from the last month to 53,478 properties, marking the 24th straight monthly fall in REOs on an annual basis.

Moreover, in the reported month, the top 10 states with the highest foreclosure rates were Florida, Nevada, Illinois, California, Arizona, Georgia, Ohio, Colorado, South Carolina and Michigan. Further, the states with largest annual rise in overall foreclosure activity included New Jersey, New York, Connecticut, Maryland, Ohio and Illinois.

The recent decline in foreclosure activity is largely driven by the switching of mortgage servicers and the government to other options – short sale, refinancing of loans and loan modifications – to prevent foreclosures. Moreover, gradually stabilizing housing sector and falling unemployment rate are likely to aid homeowners to shun foreclosures in the near term.

However, we believe foreclosure activity will accelerate in judicial states following a $25 billion deal signed between five mortgage servicers – JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C), Ally Financial Inc. and Wells Fargo & Company (WFC) – 49 states’ attorneys general and the regulators earlier this year. This could, in turn, lead to a rise in the overall foreclosure activity going forward.

Further, in two separate announcements, JPMorgan and BofA have come up with details related to fulfillment of their respective obligations related to the above-mentioned deal. As of September 30, 2012, BofA has extended $15.8 billion in mortgage relief to 164,000 homeowners. In the same time-frame, JPMorgan extended $7 billion in relief to 75,000 homeowners.

Now reverting to the main story, RealtyTrac anticipates the lenders to remain on track to complete foreclosures on 650,000 properties by the end of this year. This is lower than 800,000 foreclosures completed in 2011.

The rate at which properties are entering the foreclosure procedure is expected to trend down gradually, thereby lifting the housing prices going forward. Nevertheless, the decrease in foreclosures is expected to be at an uneven pace, as processes that are being used in handling them vary from state to state. Moreover, the housing market will get a chance to regain a solid foothold if there are sufficient buyers for these properties.



Earnings Scorecard: Dow Chemical

U.S. chemical kingpin The Dow Chemical Company (DOW) posted mixed third-quarter 2012 results and its profit slid on lower pricing across all regions. The company saw weak demand for its products in the quarter, largely stemming from the recessionary conditions in Europe.  


Third Quarter Revisited

The Michigan-based company earned 42 cents a share in the third quarter, down from 69 cents (or 62 cents excluding items) posted a year ago. That, however, trumped the Zacks Consensus Estimate of 37 cents. Dow’s profit slid 39% year over year to $497 million as lower pricing dented its sales in the quarter. 

Revenues dipped 9.7% (or 7% on an adjusted basis) year over year to $13,637 million, missing the Zacks Consensus Estimate of $14,130 million. Sales fell across all segments except Agricultural Sciences, which was the only bright spot in the quarter. Revenues in Europe slipped 10%, largely due to unfavorable currency translation. 

Volumes nudged down 1% year over year (up 2% on an adjusted basis) in the quarter. On an adjusted basis, the company saw volume gains across all geographic regions. Price fell 9% in the quarter with declines witnessed across the globe, especially in Europe and China.

We have discussed the quarterly results at length here: Dow's 3Q Mixed, Snipping Jobs.


Agreement – Estimate Revisions

Estimates for Dow have been inclined towards the negative side following the company’s third quarter results. Out of 13 analysts covering the stock, 9 have slashed their estimates for the fourth quarter over the past 30 days with 2 moving in the opposite direction. No movement was witnessed over the past week.

For 2012, 8 (out of 18) analysts have trimmed their estimates over the past 30 days while 6 have raised the same. Similar to the fourth quarter, there were no revisions in either direction over the last 7 days. 

The bearishness appears to reflect the concerns about the U.S. and European economies, slowdown in Asia and the weak pricing environment, which may continue to be a drag on the company’s results.   


Magnitude – Consensus Estimate Trend

Given the directional pressure from a string of downward revisions, estimate for the fourth quarter has gone down by 4 cents over the past month while remaining stationary (at 33 cents a share) over the past week. For 2012, there has been a decrease of a penny and 6 cents in the estimate over the past 7 and 30 days, respectively. The current Zacks Consensus Estimate for 2012 is $1.89 per share, representing an estimated decline of roughly 25%


Our View


Dow, in its third quarter call, noted that it will focus on maximizing shareholder value and invest in areas which can deliver incremental margins. The company will continue to pursue its cost reduction and efficiency programs to cope with the sluggish macroeconomic environment.

The company, under a newly announced restructuring program, is trimming its global headcount by 5% and shuttering 20 of its manufacturing plants. It further plans to cut capital spending and investment on certain growth programs that have low priority. When combined with the $1.5 billion existing cost-cutting measures, the company’s new actions are expected to collectively deliver cost savings of $2.5 billion.

Dow is benefiting from strong fundamentals in agriculture and food markets. A string of innovative products in its pipeline also adds to its strength. The company’s expanding technology pipeline is expected to fetch a $2 billion opportunity by 2015.


Dow is targeting faster-growing geographies. The company earns two-thirds of its income from outside the U.S. Growth in emerging economies has been especially fast, contributing a meaningful portion of its sales.


Moreover, the company continues to focus on offering incremental returns to its shareholders. It also continues debt repayments while making further investments. Moreover, Dow is aggressively pursuing its cost-reduction initiatives under the “Efficiency for Growth” program initiated in 2011.



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