For Immediate Release
Chicago, IL – December 4, 2009 – 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: Bank of America Corporation (BAC), Ford (F), Caterpillar (CAT), Wal-Mart (WMT) and Target (TGT).
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Here are highlights from Thursday’s Analyst Blog:
BofA to Repay Entire TARP Money
Bank of America Corporation (BAC) said on Wednesday that in a few days it will repay the entire $45 billion of bailout money it has received from the government for its participation in the Troubled Asset Relief Program (TARP) at the height of the credit crisis last year and after its purchase of Merrill Lynch & Co. earlier this year.
The move will free the bank from government involvement in its affairs and pay restrictions, even though the Treasury will hold BofA warrants. Also, the TARP repayment will make it easier for the bank to recruit a new chief executive to replace outgoing CEO Ken Lewis.
BofA said that it would use $26.2 billion in available cash and sell $18.8 billion in securities to pay the debt. The $18.8 billion issuance of common equivalent securities would be treated as Tier 1 Common capital.
Initially, BofA received $25 billion as part of the bailouts. Then the bank received an additional $20 billion in January 2009 after its acquisition of Merrill Lynch, which had billions of dollars in losses unanticipated by BofA.
Additionally, BofA intends to increase its equity by $4 billion through asset sales by June 30, 2010, and it will raise up to $1.7 billion through the issuance of restricted stock.
The repayment of TARP money is expected to reduce the bank’s earnings in the fourth quarter of 2009 by $4.1 billion.
ISM Service Survey Weak
According to the ISM numbers we should be seeing a pick up in manufacturing employment, and a fall in service jobs. However that was not confirmed, at least with respect to manufacturing by the employment report from the BLS last month, nor by the ADP numbers released yesterday.
We will see tomorrow what the BLS has to say on the subject for November. Since there are roughly six times as many people working in the service side of the economy, the service reading is obviously far more important.
One area where both parts of the economy are showing sharp contractions is in inventories. Generally speaking, though, inventories tend to be much more important to manufacturing companies like Ford (F) or Caterpillar (CAT) than they are for many service companies where inventories really just amount to the paper clips in the office supply cabinet.
However, that is not always the case. The retailers are included on the service side, and the level of inventories is a very big deal for the likes of Wal-Mart (WMT) and Target (TGT). Then again, the low inventories will probably be the salvation of many retailers this year in the face of a second straight year of dismal holiday sales. With inventories low, they will not have to be overly promotional, and will have fewer markdowns come January. It also greatly increases their asset turnover, and with it their return on equity (the old DuPont formula of net margin X asset turnover x leverage = ROE).
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