The Zacks Analyst Blog Highlights: Bank of America, BCE, Telus, Rogers Communications and Shaw Communications

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May 01, 2012, 09:30 ET

CHICAGO, May 1, 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 Corp. (NYSE: BAC), BCE Inc. (NYSE: BCE), Telus Corporation (NYSE: TU), Rogers Communications Inc. (NYSE: RCI) and Shaw Communications Inc. (NYSE: SJR).

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Here are highlights from Monday's Analyst Blog:

BofA-Merrill Settlement Disappoints

Investors in Delaware are unhappy with the $20 million settlement price offered by Bank of America Corp. (NYSE: BAC) to reconcile the lawsuits filed against it by its shareholders in relation with the acquisition of Merrill Lynch & Co. As reported by Bloomberg, the settlement price represents merely 4% of the insurance coverage provided to the Board of Directors.

The lawyers representing BofA's shareholders in Delaware alleged that the settlement proposed by the bank is highly inadequate. It signifies just a fraction of the $5 billion claim that the Delware's derivative plaintiffs have been looking for.

A Federal Judge in New York is contemplating the settlement suggested by BofA in connection with all the similar lawsuits filed by the investors, but the Delaware investors are against this meager settlement and want to keep their case open. They believe that the bank is trying to settle the case in order to evade the hearing in Delaware court in October.

The lawsuit, in lieu of which the settlement was offered, claimed that the consideration paid by BofA for the acquisition of Merrill was in excess of the required amount. In addition, the lawsuit accused BofA along with some of its senior managers and directors of deliberately concealing the amount of Merrill's losses and bonus payouts in 2008.

Moreover, BofA was forced in January 2009 to take a second bailout from the Troubled Asset Relief Program (TARP) due to Merrill losses. This led to a 93% drop in the bank's stock price. The acquisition of Merrill turned sour, which compelled the shareholders to take legal action.

Earlier, in 2009, the Securities and Exchange Commission (SEC) had also charged a fine of $150 million on BofA based on similar issues.

Our Take

The increasing number of lawsuits on BofA can result in tainted goodwill and elevated litigation costs, which will have a negative effect on its profitability.

Currently, the shares of BofA have a Zacks #3 Rank, which translates into a short-term Hold rating. Additionally, we maintain our long-term Neutral recommendation on the stock.

Canada Plans Spectrum Auction

The Canadian telecom regulator is expected to hold an auction for fourth-generation (4G) mobile and fixed wireless spectrum in the 700 MHz band in the first half of the next year. The regulator will be able to raise roughly C$900 million by providing several frequency bands to Canadian mobile operators that will in turn change their competitive positions.

Need for Auction

The present wireless market is ready for the incipient boom in the wireless data space with expanding broadband services. Data traffic is growing in leaps and bounds and has more than doubled over the last three years.

Global carriers, including Canadian ones, are finding it increasingly difficult to manage rising mobile data traffic given competitive pressure and limited wireless spectrum licenses. Hence, the carriers are in need of additional airwaves to expand their high-speed services and support 4G LTE mobile broadband services.

We believe Canadian operators will try to make the most of this opportunity and participate in the auction process. Winning frequencies will aid operators in deploying advanced LTE mobile services.

Auction Structure

The Canadian regulator intends to keep bids anonymous by offering packaged licenses. The spectrum will be auctioned in 14 regions; each having five prime blocks with paired spectrum and two blocks of unpaired spectrum. This would reduce the potential for winning all the bids desired by individual companies, in particular the large caps.

Notably, the three major Canadian mobile operators, BCE Inc. (NYSE: BCE), Telus Corporation (NYSE: TU) and Rogers Communications Inc. (NYSE: RCI) can acquire a prime block each. The remaining blocks will be reserved for smaller carriers such as Quebecor Inc. and Shaw Communications Inc. (NYSE: SJR) and new entrants. The winning conditions depend on the timely roll out of 700 MHz LTE services to rural areas by the bidder.

Further, the auction calls for more foreign investment. The recent removal of restrictions on the foreign investment in Canadian telecom companies (having less than 10% of market share) has permitted some companies such as Wind Mobile and Mobilicity to bid in the auction process.

Bottom-line

We will be carefully watching the actions of these Canadian companies and their advantages from the auction process. While waiting for the auction process to start, we are maintaining our long-term Neutral recommendation on BCE, Telus, Rogers and Shaw Communications. For the short term, the stocks hold the Zacks #3 (Hold) Rank for the short term (1–3 months).

The 700 MHz auction will be followed by the 2500 MHz auction within a year.

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