Zacks Bull and Bear of the Day Highlights: Fastenal, Cincinnati Financial, JPMorgan Chase, U.S. Bancorp and BB&T
Posted on August 23, 2011 at 09:30 AM EDT
CHICAGO, Aug. 23, 2011 /PRNewswire/ -- Zacks Equity Research highlights Fastenal Co. (Nasdaq: FAST) as the Bull of the Day and Cincinnati Financial (Nasdaq: CINF) as the Bear of the Day. In addition, Zacks Equity Research provides analysis JPMorgan Chase & Co. (NYSE: JPM), U.S. Bancorp (NYSE: USB) and BB&T Corporation (NYSE: BBT).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Fastenal Co. (Nasdaq: FAST) is one of the leading distributors of industrial and construction supplies and fasteners. It has a diversified customer base that helps it retain its market position even during the toughest times. Moreover, the hub and spoke model employed to improve the level of customer services will also increase customer satisfaction and benefit its business going forward.
In addition, Fastenal is focused on expanding its product portfolio. Furthermore, the company's collaborative efforts to work with state governments will strengthen its position in the local market.
Earnings in the most recent quarter marginally exceeded the Zacks Consensus Estimate by $0.01 per share. Given these conditions, we upgraded our recommendation on shares of Fastenal to Outperform from Neutral and set a target price of $41.
We downgraded our recommendation on Cincinnati Financial (Nasdaq: CINF) following the wider-than-expected operating loss reported by the company in second quarter 2011 owing to huge cat losses. Moreover, the Commercial Lines segment will remain somewhat weak due to the sluggish economy, although the decline in business is moderating.
The company is expected to face limited investment growth due to continued low yields for investment options. We expect pressure on top line until the soft insurance market cycle turns completely.
Our six-month target price of $25.00 equates to about 42.4x our earnings estimate for 2011. We view the $1.60 per common share annual dividend as secure, implying a negative return of about 4.7% over that period. This is consistent with our Underperform recommendation on the shares.
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Bank Failures Crawl Up to 68
Bank failures continue with no end in sight. Last Friday, U.S. regulators closed down three more banks in Florida, Georgia and Illinois, taking the total number to 68 so far in 2011. Looking back, there were 157 bank failures in 2010, 140 in 2009 and 25 in 2008.
While the financials of bigger banks have been stabilizing on the back of an economic recovery, many smaller banks are still struggling to survive. Nagging issues like rock-bottom home prices along with still-high loan defaults and unemployment levels continue to trouble such institutions.
Lingering effects of the financial crisis continue to weigh on many banks. It becomes obligatory for such banks to absorb bad loans offered during the credit explosion, making them susceptible to severe problems. The uncertain environment is aggravating the risk of bank failures even further.
The most recent failed banks are:
These bank failures represent another jolt to the deposit insurance fund (DIF), meant for protecting customer accounts.
The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,575 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.
Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the ongoing bank failures have kept it under pressure. As of March 31, 2011, the fund remained in the red with a deficit of $1.0 billion, though substantially better than the deficit of $7.4 billion in the prior quarter.
The failure of Lydian Private Bank is expected to deal a blow of about $293.2 million to the FDIC, while First Southern National Bank and First Choice Bank will cost about $39.6 million and $31.0 million, respectively.
Miami, Florida-based Sabadell United Bank, National Association has agreed to assume the assets and deposits of Lydian Private Bank. The FDIC and Sabadell United Bankhave agreed to share losses on $907.1 million of Lydian Private Bank's assets.
Albany, Georgia-based Heritage Bank of the South has agreed to assume the assets and deposits of First Southern National Bank. The FDIC and Heritage Bank of the Southhave agreed to share losses on $115.7 million of First Southern National Bank's assets.
Oak Brook, Illinois-based Inland Bank & Trust has agreed to assume the assets and deposits of First Choice Bank.
The number of banks on FDIC's list of problem institutions saw a marginal increase to 888 in the first quarter from 884 in the previous. This is the highest number since way back in March 31, 1993, when there were 928 problem institutions due to the savings and loan crisis.
Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the coming years. Going by the current rate of bank insolvencies, the DIF is likely to feel a $52 billion dent by 2014. However, considering the track record so far this year, the FDIC does not expect the number of bank failures in 2011 to surpass that of 2010.
With so many bank failures, consolidation has become the industry fashion. For almost all the failed banks, the FDIC enters into a purchase agreement with healthy institutions. When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. history), it was acquired by JPMorgan Chase & Co. (NYSE: JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (NYSE: USB) and BB&T Corporation (NYSE: BBT).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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