For Immediate Release
Chicago, IL – May 11, 2010 – Zacks Equity Research highlights Novellus Systems (NVLS) as the Bull of the Day and Loews Corporation (L) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Deutsche Bank (DB), Towne Bancorp (TWNE) and City National (CYN).
Full analysis of all these stocks is available at http://at.zacks.com/?id=5506
Here is a synopsis of all five stocks:
Novellus Systems (NVLS) is a leading supplier of interconnect formation equipment used in semiconductor manufacturing. The recovery in technology markets — particularly the strength at memory and foundry manufacturers — has led to very strong revenue and earnings growth in the last three quarters, beating the Zacks Consensus Estimates.
We expect continued improvement, driven by technology purchases and capacity additions towards the year-end. The company also has a good financial position and returns cash to investors in the form of share repurchases.
Although customer concentration and a significant cost structure are of concern, we believe they will not pose a big challenge given the growing demand. Consequently, we are upgrading Novellus shares to Outperform and setting a target price of $30.
We are downgrading our recommendation on Loews Corporation (L) to Underperform. Loews’ first quarter earnings were in line with the Zacks Consensus Estimate and the company benefited from improved investment income at its insurance unit, CNA Financial.
However, the volatility in natural gas and oil prices raises our concern for Diamond Offshore and HighMount’s earnings performances. Additionally, the soft insurance market and weak economic conditions remain a headwind for CNA Financial.
We believe that the challenging economic environment will have a restrictive effect on the top-line growth of the company. Our target price of $31.00 per share equates to about 8.4X our 2010 earnings estimate. This implies an expected negative total return of 8.6% over that period, which is consistent with our Underperform recommendation on the shares.
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Das TARP
There are still some very key structural problems with the Euro. Foremost among these is that the PIIGS, (Portugal, Ireland, Italy, Greece and Spain) are uncompetitive in trade terms while they are also running large budget deficits. Because they are locked into the Euro, they can’t devalue to make themselves more competitive. The only other way to get more competitive is massive wage cuts to bring down prices of goods and services that they might be able to sell abroad.
At the same time they need to make massive cuts in spending, and/or raise taxes significantly to get budget balances back at sustainable levels. That is not a very appealing plan to the voters of those countries, as witnessed by the riots in Athens last week.
Markets know these adjustments are going to be difficult, so the cost of borrowing from the weak countries soared, especially relative to stronger countries (very notably including the U.S., but the key is relative to the German Bund, since they are denominated in Euros, just like Greek or Portuguese government debt is). Higher interest rates cause local asset prices to fall. Banks are highly leveraged institutions, so this raises concerns over bank balance sheet increases.
By and large the big European banks have not done the sort of capital raising over the last year than the big U.S. banks have done. They will have to in the future, probably meaning significant dilution for the equity holders in big European Banks that have a lot of exposure to the PIIGS, like Deutsche Bank (DB). This combination was causing an incipient run on banks. If Greece were still on the Drachma it could reasonably devalue, but this is not an option within the Euro bloc.
68 Bank Failures So Far in 2010
Bonifay, Florida-based The Bank of Bonifay with total assets of $242.9 million and total deposits of $230.2 million.
Champlin, Minnesota-based Access Bank with $32.0 million in total assets and $32.0 million in total deposits.
Mesa, Arizona-based Towne Bank, a subsidiary of Towne Bancorp (TWNE), with $120.2 million in assets and $113.2 million in deposits.
San Diego, California-based 1st Pacific Bank with total assets of $335.8 million and deposits of $291.2 million.
These bank failures will deal another blow to the Federal Deposit Insurance Corporation’s (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.
When a bank fails, FDIC reimburses customers for their deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund.
However, the FDIC has about $66 billion in cash and securities available in reserve to cover losses arising from bank failures. Also, the FDIC has access to the Treasury Department’s credit line of up to $500 billion.
The four failed banks together would cost the FDIC’s Deposit Insurance Fund about $213.7 million.
The Bank of Bonifay is expected to cost the deposit insurance fund about $78.7 million, Access Bank will cost about $5.5 million, Towne Bank will cost about $41.8 million and 1st Pacific Bank will cost around $87.7 million.
Lake City Florida-based First Federal Bank will assume the assets and deposits of The Bank of Bonifay.
Prinsburg, Minnesota-based PrinsBank will buy the assets and deposits of Access Bank.
Tucson, Arizona-based Commerce Bank of Arizona agreed to buy all of the deposits and assets of Towne Bank.
Los Angeles, California based City National Bank, a subsidiary of City National (CYN), will assume all of the deposits and assets of 1st Pacific Bank.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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