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The Zacks Analyst Blog Highlights: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and U.S. Steel

Zacks Equity Research

For Immediate Release

Chicago, IL – May 14, 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 JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC), Citigroup Inc. (C), Wells Fargo & Company (WFC) and U.S. Steel (X).

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Here are highlights from Monday’s Analyst Blog:

Foreclosure Activity Falls Again

Indicating the marginal revival of the housing market, the foreclosure market report – released by RealtyTrac – revealed a consistent fall in the overall foreclosure activity in Apr 2013.  According to this leading online marketplace of foreclosure properties, foreclosure filings plunged 23% from Apr 2012 and 5% from Mar 2013.

This brought the aggregate number of properties receiving default, auction or repossession notices to 144,790 – the lowest level since Feb 2007.

Foreclosure starts – default notices issued and foreclosure auctions (depending on the state’s foreclosure procedure) – fell 28% from Apr 2012 and 4% from Mar 2013 to 70,133 properties in the reported month. However, foreclosure starts has been steadily rising in a few non-judicial states including Nev., Wash. and Ark. since late 2012 with servicers’ adjustment to new regulations enacted to prevent flawed foreclosures.

Given the increase in foreclosure starts in many judicial states, scheduled foreclosure auctions in judicial states jumped 31% year over year and 22% from the prior month to the highest level since Oct 2010. This indicates that servicers are going forward with the completion of the foreclosure activity through repossession or sale. However, scheduled non-judicial foreclosure auctions were down 43% from Apr 2012 and 7% from Mar 2013 to the lowest level since Dec 2005.

Meanwhile, bank repossessions (REOs) plunged 32% from the prior-year month and 20% from the previous month to 34,997 properties in April. This was the lowest level since Jul 2007. On an aggregate, 37 states as well as the District of Columbia reported year-over-year fall in REO activity.

The top 10 states with the highest foreclosure rates in the first quarter were Nevada, Florida, Ohio, Illinois, South Carolina, Connecticut, Maryland, Georgia, Delaware and Arizona.

The drop in foreclosure activity is due to mortgage servicers and the government switching to other options to prevent foreclosures. However, the dip is expected to remain volatile, as the processes being used for handling these differ from state to state.

Foreclosure activity is expected to increase in the judicial states, given the substantial backlogs. Further, as the major servicers – JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC), Citigroup Inc. (C), Ally Financial Inc. and Wells Fargo & Company (WFC) – adjust to the new rules set under the National Mortgage Settlement as well as several other state laws, foreclosure activity is bound to rise in the near term.

Nevertheless, we believe that the stabilizing housing sector as well as consistent job growth and low mortgage rates are likely to aid homeowners in avoiding foreclosures. Further, the rate at which properties are entering the foreclosure procedure is expected to slacken eventually, raising the housing prices going forward. The housing market will also get an opportunity to regain a strong foothold if there are sufficient buyers for these properties.

U.S. Steel Dropped to Underperform

We have downgraded U.S. Steel (X) to Underperform factoring in the oversupply in the steel industry, pricing pressure, a still depressed construction market and the challenges faced by the company’s flat-rolled business.

Why the Downgrade?

The largest integrated U.S. steel producer posted, on Apr 30, a net loss of $73 million or 51 cents per share for the first quarter, narrower than net loss of $219 million or $1.52 per share recorded a year ago. Adjusted loss of 35 cents a share was wider than the Zacks Consensus Estimate of a loss of 18 cents.

Sales fell roughly 11% year over year to $4,595 million, missing the Zacks Consensus Estimate of $4,612 million. U.S. Steel faced continued economic challenges and competitive steel market conditions in the quarter.

While U.S. Steel should benefit from increased cokemaking capabilities and healthy automotive demand, it continues to contend with challenging steel market fundamentals.

Current trends in the steel industry are not quite inspiring. Oversupply in the industry has led to a decline in steel prices as Chinese steel production has outpaced demand. Oversupply and increased domestic imports represent headwinds for U.S. Steel.

Macroeconomic concerns and a still sluggish construction market are still weighing on U.S. Steel’s prospects. Pricing in Europe remains under pressure due to the sovereign debt crisis and weak demand.

U.S. Steel is also exposed to risks concerning pricing and availability of raw materials. The company expects raw material (iron ore) costs to rise in its European operation in the second quarter, thereby impacting results.

Moreover, higher costs are expected to hurt the company’s flat-rolled business in the second quarter. U.S. Steel envisions operating costs to increase as a result of higher repairs and maintenance costs and higher natural gas costs. Our view reflects these concerns.

U.S. Steel currently carries a short-term Zacks Rank #5 (Strong Sell).


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