For Immediate Release
Chicago, IL – September 14, 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: FedEx Corp. (FDX), United Parcel Service Inc. (SNDA), UBS AG (UBS), Moody’s Corp. (MCO) and McGraw-Hill (MHP).
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Here are highlights from Friday’s Analyst Blog:
FedEx Preannouncement Beats
Shares of FedEx Corp. (FDX) have jumped more than 5% so far today after the company preannounced fiscal first-quarter earnings, which topped Wall Street expectations.
The package-delivery major said that it expects to post earnings of 58 cents per share, which is well above its guidance of 30 cents to 45 cents as well as the Zacks Consensus Estimate of 43 cents per share. The company reported earnings of $1.23 per share in the year-ago quarter.
The Memphis, TN-based company also stated that fiscal second-quarter earnings is expected to range between 65 cents and 95 cents per share, which is in line with the Zacks Consensus Estimate of 71 cents per share derived from 15 covering analysts. The guidance is still well below the year-ago earnings of $1.58 per share.
FedEx attributed the better-than-expected first quarter earnings to improved International Priority (IP) shipping volumes and management’s cost cutting efforts. The IP service generated revenues of nearly $7 billion and contributed about 19.6% towards total revenue during fiscal 2009.
However, the company added that revenue per shipment dipped year over year in each of the transportation segments amid a competitive pricing environment coupled with significant overcapacity in less-than-truckload (LTL) freight market. The company, which competes with United Parcel Service Inc. (SNDA), also said that the second quarter guidance incorporates the current outlook on fuel prices and a modest recovery in global economic conditions.
Moody’s Under SEC Axe
Swiss banking giant UBS AG (UBS) was recently ordered to pledge its assets or provide bonds worth $35 million by Judge John Blawie at Connecticut Superior Court. The unfavorable order came as a blow after reports claimed that top credit ratings agencies had committed a securities fraud by providing insider trading information to the bank.
Stanford-based hedge fund Pursuit Partners claimed that UBS had entered a deal to sell its investment-grade collateralized debt obligation (CDO) notes in 2007 with the prior knowledge that the securities were about to be downgraded.
The proceedings revealed that the rating agencies Moody’s Corp. (MCO) and Standard & Poor’s provided insider information to UBS regarding their impending decision to downgrade some of the CDOs the bank was selling. The credit crunch led the securities to default only months after they were sold and UBS used the situation to its advantage.
The Court order came at the end of a one-week hearing, where various UBS employees testified and related documents, including internal UBS e-mails, were reviewed. However, UBS pledged innocence saying that the Court’s decision was a routine procedure, requiring defendants to provide security during the case proceedings.
The UBS litigation reflects a negative sentiment that has built up against large credit rating agencies for sharing furtive connections with big investment banks. This would certainly hurt Moody’s goodwill and highlight the fact that rating agencies can be bought. The integrity of the company and its ratings are in question.
Moody’s allegedly hastened the credit crisis earlier in the decade by assigning top ratings to mortgage-backed securities that deteriorated later. Moreover, it is being probed by regulators worldwide, with several ongoing reviews in Europe for rating a European debt product, constant proportion debt obligations (CPDOs), at a higher-than-merited AAA.
The SEC has designed various measures to stop the practice of corporations seeking to buy favorable ratings by negotiating fees with raters. Although Moody’s is not ultimately compensated on the accuracy of its ratings, we believe it will face large penalties similar to investment banks in the wake of the technology bubble earlier in the decade.
The SEC is expected to hold a meeting on Sept. 17 to vote on proposed rules for credit rating agencies and pose restrictions on controversial flash orders. Regulators will also vote on the subject on adopting previously proposed rules to improve credit rating practices. The major credit rating agencies under the scrutiny would be Moody’s, McGraw-Hill (MHP), Standard & Poor’s and Fitch Ratings.
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