For Immediate Release
Chicago, IL – October 1, 2010 – Zacks.com Analyst Blog features: Triumph Group Inc. (TGI), Citigroup Inc. (C), Bank of America Corp. (BAC), UBS AG (UBS) and Wells Fargo & Co (WFC ).
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Here are highlights from Thursday’s Analyst Blog:
Triumph Upped to Outperform
We upgrade our recommendation on Triumph Group Inc. (TGI) from Neutral to Outperform based on the recent Vought acquisition, which was highly accretive to first quarter fiscal 2011 earnings of $1.33 per share. Reported EPS surpassed the Zacks Consensus Estimate of $1.08.
Management expects the acquisition to add approximately $1.10 to the earnings estimate in fiscal 2011 and synergies are expected to be approximately $15.0 million within a year. Hence, Triumph has raised its guidance to approximately $6.00 per share, an approximately 17.0% increase from fiscal 2010. Besides, the Zacks Estimate is even higher at $6.14.
During the first quarter, Triumph completed the acquisition of Vought Aircraft Industries Inc. from private equity firm The Carlyle Group for $1.44 billion. Triumph paid $525 million in cash and offered 7.5 million shares to Carlyle for a 31% stake in Triumph.
Triumph issued senior notes to fund the acquisition. The acquired business operates as Triumph Aerostructures-Vought Commercial Division and Triumph Aerostructures-Vought Integrated Programs Division.
Moreover, the company’s focus on growing its core businesses along with its strict cost control strategy will help it to profit in the long run. Triumph’s organic growth also remained strong with the addition of products and services, the expansion of operating capacity and marketing of a complete portfolio of capabilities. The company follows a strict cost control program and achieved an operating margin of 12.4% in the first quarter of fiscal 2010, which may help it pull through the difficult period.
Treasury to Sell Citi’s TRUPS
As part of its effort to unwind its holdings in Citigroup Inc. (C), the U.S. Treasury has announced its plan to commence selling $2.2 billion in trust preferred securities (TRUPS) it received from Citi in relation to the Asset Guarantee Program (AGP). The Treasury has made it clear that it will sell the TRUPS at a price which is not less than its par value plus any accumulated and unpaid distributions.
The Treasury had received these TRUPS in January 2009 as part of its effort to rescue Citi from the clutches of the recession. The TRUPS were part of the Treasury’s agreement to share Citi’s potential losses on $301 billion of Citi’s assets. This loss sharing agreement, which was intended as a sort of insurance, also included the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. Citi handed over these securities as a premium for sharing any potential loss in the next 5 to 10 years.
As the Treasury neither had to nor has any further obligations to pay under the arrangement, the proceeds that it would receive following the sale will represent a net gain for the taxpayer fund.
BofA Merrill Lynch of Bank of America Corp. (BAC), UBS AG (UBS)and Wells Fargo & Co (WFC ), among others, will act as joint lead managers for the offering. Citigroup Global Markets Inc. will act as global coordinator but not as an underwriter or sales agent.
Citi, one of the companies severely hurt during the credit crisis, had received $45 billion in bailout funds in 2008 through the Troubled Asset Relief Program (TARP). Later, around $25 billion of that was converted into common stock. Citi repaid the remaining $20 billion and terminated the loss-sharing agreement in December 2009. The Treasury has sold 2.6 billion of the 7.7 billion common shares it owned in Citi by July 2010.
However, the offering excludes the $800 million in TRUPS which have been retained by the FDIC but has to be turned over to the Treasury. It also excludes Citi’s warrants issued as part of participation in AGP and other Treasury programs.
We expect some sort of volatility in Citi stock price in the near-term following the TRUPS sale. However, the government overhang on the stock seems to reduce; this coupled with the company’s restructuring initiatives is encouraging. Its core business, Citicorp, remains attractive, while its international business also has a good growth momentum. An economic rebound would help it to witness a further improvement in credit quality.
Nevertheless, the recent legislative measures coupled with the shrinking of its Citi Holding business through assets sale would pose some sort of revenue challenge in the days ahead.
Citi is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock is also rated Neutral in the long term.
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