Bank of America Corporation, Mitsubishi UFJ Financial Group, Morgan Stanley, Ecob Inc. and Church & Dwight Highlighted in the Zacks Analyst Blog

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Dec 03, 2012, 09:30 ET

CHICAGO, Dec. 3, 2012 /PRNewswire/ -- 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), Mitsubishi UFJ Financial Group, Inc. (MTU), Morgan Stanley (MS), Ecolab Inc. (ECL) and Church & Dwight(CHD).

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Today, Zacks is promoting its ''Buy'' stock recommendations. Four daily picks are offered free.

Here are highlights from Monday's Analyst Blog:

BofA May Fully Vend Stake in Mitsubishi JV

As part of its global strategy to move away from international wealth management business, Bank of America Corporation (BAC) is in talks with Mitsubishi UFJFinancial Group, Inc. (MTU) to sell its remaining stake in the joint venture (JV) – Mitsubishi UFJ Merrill Lynch PB Securities Co. The announcement related to the 49% stake sale, worth approximately ¥40 billion ($487 million), could come as early as next month.

The JV was formed in May 2006 by MUFJ and Merrill Lynch Co. Subsequently, during the height of the financial crisis in 2008, BofA acquired Merrill Lynch and hence, the JV was integrated into BofA's operations. Currently, the JV employs about 440 people (about 80% coming from Merrill Lynch).

The JV provides wealth management services to clients with assets worth more than ¥100 million. Moreover, it remains a profitable venture, with profits of nearly ¥6.8 billion ($86.1 million) in the fiscal year ended March 31, 2012.

Yet, BofA chose to divest its stake in the JV, as the company has been trying to consolidate its global operations and doing away with its non-core businesses. Over the last two years, the company has completed the divestiture/closure of more than 20 non-core assets to strengthen its capital position in order to improve its efficiency.

In August 2012, BofA announced the divestiture of its international wealth management operations to Julius Baer Group for nearly CHF860 million ($882 million). The deal, which is still subject to regulatory approvals, is expected to close by the end of this year or early next year. Additionally, the divestiture did not include the aforesaid JV.

Moreover, for MUFG, the purchase of the remaining JV stake will further strengthen its dominance over the wealth management market as well as stabilize the revenue base. This would also enable MUFG to further improve its relationships with Morgan Stanley (MS), with whom it has three separate JVs.

Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. The company has made considerable progress in improving its capital base. We believe that the above mentioned divestiture, if finalized, will further aid the company in attaining its goal. This could serve as a slight positive for the company, thereby leading to modest upward estimate revision. This, in turn, could improve the company's Zacks Rank.

Ecolab Attains 52-Week High

Shares of Ecolab Inc. (ECL) reached a 52-week high of $72.00 on Thursday, November 29, 2012. The closing price of this dental equipment stock as of September 28, 2012 was $71.81, which represented a solid year-over-year return of 31.2%.

Growth Drivers

Several factors such as the company's solid third quarter results, the recent acquisition of Champions Technologies, the divestment of Vehicle Care and new product launches are driving the stock.

On October 30, 2012, Ecolab reported adjusted earnings per share of 87 cents, representing a 16% jump from the year-ago earnings of 75 cents per share. Despite the restructuring and integration expenses related to the Nalco merger, profit attributable to Ecolab in the reported quarter climbed 54% year over year to $238 million (or 80 cents per share).

On a fixed currency basis, revenues grew 7% in comparison with the year-ago pro forma fixed currency sales (inclusive of the Nalco operations). Growth was triggered by higher sales from Global Energy, Healthcare, Latin America and worldwide Kay as well as the Pest Elimination franchises.

Moreover, in an effort to expand its Global Energy Services franchise, Ecolab agreed to acquire privately-owned Champion Technologies and its related company Corsicana Technologies for $2.2 billion, in cash and stock. This is Ecolab's biggest acquisition since the company acquired Nalco in 2011.

The acquisition of Champion Technologies is likely to strengthen Ecolab's market position and help the company benefit from one of the fastest growing industries in the U.S. Following the closure, the company is slated to become a giant in the oilfield chemical business.

The buyout will enhance Ecolab's operating scale in North America. Moreover, the correlated technology and consumer base ensure that the deal is a strategic fit for the company as the combined venture will be well-positioned in the global energy market.

Ecolab envisages incremental returns as reflected in its higher expected return on invested capital. Despite the high cost, the deal structure will enable Ecolab to maintain a strong investment grade balance sheet as the company expects to return to 'A range' metrics within three years.

Further, as the company gains competitive advantage and makes headway in the energy market, the divestment of its under-performing Vehicle Care division will allow it to direct resources and focus on high growth avenues. Ecolab has agreed to sell its Vehicle Care division to Atlanta, Georgia-based Zep Inc. (ZEP) for roughly $120 million in cash.

Moreover, de-leveraging remains a looming concern for Ecolab due to long-term debt of $4.9 billion and a $1.7 billion cash payment for the latest acquisition. Thus, the sale of the Vehicle Care division will garner additional funds for the company.

New innovative products such as the latest range of USDA BioPreferred and Green Seal certified bio-based hard surface cleaners, along with the KAY Filter Pouch Cleaner and the Greaselift non-corrosive and biodegradable kitchen degreasing solution are slated to drive segment sales.

Earnings Estimate Revision

For fiscal 2013, the Zacks Consensus Estimate rose by 2.3% over the last 60 days to $3.59 per share, implying year-over-year growth of 20.31%.

Valuation

The company currently trades at a forward P/E of 24.1x, a 55.5% premium to the peer group average of 15.50x. The price-to-book ratio of 3.50x represents a 12.5% premium to the peer group average of 3.11x. Given Ecolab's strong business fundamentals, the premium is justified.

Ecolab has a trailing 12-month ROE of 13.5% compared with the peer group average of 18.0%.

About the Company

St. Paul, Minnesota-based Ecolab serves the food service, food and beverage processing, healthcare, energy, water treatment and hospitality markets both in the U.S. as well as internationally. The company continues to invest in strategic areas such as health care, food, water and energy and global pest elimination to expand its business.

Although we are impressed by Ecolab's strong international exposure, we remain cautious about currency fluctuations and aggressive competition from the likes of Church & Dwight (CHD). Raw material price inflation also remains a headwind.

We currently have a 'Neutral' recommendation on Ecolab. The stock carries a short-term Zacks #3 Rank (Hold rating).

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