Business & Finance
Business and Finance
Business and Finance
Wed, July 14, 2010
Tue, July 13, 2010 COPEL, CNOOC, Bank of America, Citigroup and Bank of New York Mellon
CHICAGO--([ BUSINESS WIRE ])--[ Zacks Equity Research ] highlights COPEL (NYSE: [ ELP ]) as the Bull of the Day and CNOOC Ltd. (NYSE: [ CEO ]) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America Corporation (NYSE: [ BAC ]), Citigroup Inc. (NYSE: [ C ]) and Bank of New York Mellon Corporation (NYSE: [ BK ]).
Full analysis of all these stocks is available at [ http://at.zacks.com/?id=2678 ].
Here is a synopsis of all five stocks:
[ Bull of the Day ]:
Companhia Paranaense de Energia, or COPEL (NYSE: [ ELP ]) remains better positioned than many of its U.S. and emerging market utility peers, given the growing demand for electricity and a strongly favorable outlook for the Brazilian economy. We expect the Brazilian economy to outperform the more developed economies of Europe, the U.S. and Japan in the years ahead.
Being a state-owned company, COPEL's managerial decisions are sometimes influenced by political issues. Nevertheless, the company's strong balance sheet, strict control over cost and continuous investments to increase internal generation capacity motivate us to upgrade our recommendation to Outperform. We strongly believe that the company's results will improve in the medium term due to its continued investments in internal generation capacity. Our $26.00 target price is based on 12.7X 2010 earnings per ADR.
[ Bear of the Day ]:
We are downgrading CNOOC Ltd. (NYSE: [ CEO ]) ADRs to Underperform from Outperform. We believe that the company has lost its attractiveness as a pure Chinese offshore oil explorer.
While domestic initiatives continue, CNOOC is currently exploring various international upstream projects to cope with the country's rising demand. We initially thought the $3.1 billion Bridas deal to be a prudent step, but now we are concerned about the challenging Argentine tax regime.
The company is currently experiencing a downward movement in the performance of its ADRs, which we believe will again run into rough weather with oil prices hovering in the mid-$70s. We recommend investors to go for attractively valued peers such as Sinopec.
Latest Posts on the Zacks [ Analyst Blog ]:
BofA Resorts to Window Dressing
Bank of America Corporation (NYSE: [ BAC ]) has confessed that it had incorrectly reported approximately $573 million to $10.7 billion in short-term lending and repurchase deals a" or areposa™ a" as sales over a period of three years (2007 to 2009).
This is similar to what Lehman Brothers Holdings Inc. did using a strategy called Repo 105 to remove $50 billion out of its balance sheet and make its financials look better, according to the bankruptcy-court examiner. The Repo 105 strategy allows a company to remove assets from its balance sheet and helps in reducing its financial leverage.
BofA had admitted this in a letter to Securities and Exchange Commission (SEC) in April 2010, as the SEC prepares to disclose the results of its inquiry in to companiesa™ accounting for such repo deals later this week. Repos are short-term loans that permit banks to take a much larger risk on securities trades.
In March 2010, the SEC had started its own inquiry into the repo practices of companies and had asked many top notch financial companies to furnish more data regarding their repo accounting. The SEC is considering more transparent and strict disclosure about the companiesa™ account for repo, following the Lehmana™s bankruptcy enquiry report.
BofA stated that it had formulated the deals in such a manner that securities coming back to the company were similar but not asignificantly the samea as those that were removed. This would require the trade to be recognized as sales and remove the assets from the balance sheet. But the securities that were added back were asignificantly the samea, i.e. with the same coupon and guarantor. Hence, this should have been accounted as borrowing and not as sales.
Such deals, where mortgage-backed securities are assigned a trading partner with a concurrent contract to repurchase similar securities from the same partner soon thereafter, are known as Dollar deals.
By categorizing such deals as sales, BofA was able to reduce the size of its balance sheet and thus decrease its reported leverage. This improved the companya™s Tier 1 capital leverage ratio by 0.01% for the September 2008 quarter. BofA had first recognized these mistakes in its first quarter 2010 results but the details were not divulged at that time.
This practice, also known as window dressing, is not illegal, but deliberately concealing debt is against regulatory rules. But BofA claims that its mistakes were not on purpose, mentioning that the SEC has not taken any action against the company.
The amount mentioned above is relatively small as compared with the total assets worth $2.3 trillion. While acknowledging that there were six such transactions during the period reported above, BofA said that the accounting errors did not have a significant impact on its financial results and earnings.
Earlier in May, the Wall Street Journal had reported that both BofA and Citigroup Inc. (NYSE: [ C ]) had unethically hidden billions of dollars of their debts from the investors. Since the beginning of the financial turmoil, both these companies had often reduced their assets while reporting the quarterly results.
Separately, Bank of New York Mellon Corporation (NYSE: [ BK ]) declared in a securities filing that it had found certain mistakes in its repo accounting over the past three years. According to the company, these errors were corrected and will not have any financial impact.
Following these disclosures, many financial companies will also come under the radar of SEC and investors will also think twice before investing in such companies. This will likely have a negative impact on BofAa™s share price and financial results, which were stabilizing a bit following huge losses in 2009.
Get the full analysis of all these stocks by going to [ http://at.zacks.com/?id=2649 ].
About the Bull and Bear of the Day
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.
About the Analyst Blog
Updated throughout every trading day, the [ Analyst Blog ] provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks [ "Profit from the Pros" ] e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting [ http://at.zacks.com/?id=7158 ].
About Zacks
Zacks.com is a property of [ Zacks Investment Research ], Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the [ Zacks Rank ], which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at [ http://at.zacks.com/?id=4582 ].
Visit [ http://www.zacks.com/performance ] for information about the performance numbers displayed in this press release.
Follow us on Twitter: [ http://twitter.com/zacksresearch ]
Join us on Facebook: [ http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts ]
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
