The Zacks Analyst Blog Highlights: Bank of America, HSBC Holdings, Wells Fargo, JPMorgan Chase and Companhia de Saneamento Basico do Estado de Sao Paulo

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Apr 04, 2013, 09:30 ET

CHICAGO, April 4, 2013 /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 (NYSE:BAC), HSBC Holdings plc (NYSE:HBC), Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM) and Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP (NYSE:SBS).

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Here are highlights from Wednesday's Analyst Blog:

BofA Settles Credit Unions' Claims

In yet another resolution of claims related to the sale of risky mortgage based securities (MBS), Bank of America Corporation (NYSE:BAC) has agreed to pay $165 million to the U.S. regulator for credit unions – National Credit Union Administration (NCUA). Yet, BofA neither accepted nor denied any wrong doing.

Countrywide Financial – acquired by BofA in 2008 – had sold risky MBS to five corporate credit unions, which led to their failure following the financial crisis. Since then, the regulator for credit unions has been trying to recover the losses.

Earlier in February, BofA revealed that it had reached an initial agreement with the credit union regulator to settle the claims, without disclosing the amount required to be paid. Also, the company had stated that no additional reserves will be required to settle the claims.

BofA is the fourth bank to settle credit union regulator's claim. Earlier, the regulatory body had reached settlements with Deutsche Bank AG, HSBC Holdings plc (NYSE:HBC) and Citigroup Inc. worth about $171 million. Apart from these, other global banks including Credit Suisse Group, Goldman Sachs Group Inc., Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM) and Barclays PLC are facing lawsuits from the credit union regulator for similar charges.

For BofA, the settlement of the claim is a positive step towards resolving the issues pertaining to the sale of MBS. Over the past few months, the company has been trying hard to overcome the losses from its home loan business.

In Jan 2013, BofA announced nearly $14 billion worth of settlements to end its mortgage related problems. Further, in 2011, the company had reached an $8.5 billion settlement deal with the private investors who had brought those risky MBS.

We believe that the resolution of claims will go a long way to improve BofA's overall efficiency. The company has been striving hard to regain its past glory. For this, it has announced several initiatives that have now started bearing fruits. All the initiatives will lead to enhanced financial performance going forward.

Currently, BofA retains a Zacks Rank #3 (Hold).

SABESP Upgraded to Outperform

We have recently upgraded Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP (NYSE:SBS) from Neutral to an Outperform recommendation, anticipating its performance to be better than the broader market.

Why the Upgrade?

SABESP is a Brazil-based water and sewage service provider serving primarily the State of São Paulo. Long-term growth prospects seem bright as the company is progressing well to achieve a target of roughly 1.3 million new water connections and 1.7 million new sewage connections by 2019. Water and sewage connections in 2012 represented a year-over-year growth of 2.6% and 3.5%, respectively.

To improve its services, SABESP has allocated approximately R$9.9 billion to finance its capital investment plans for the 2013-2016 timeframe. Of the total, 26.2% is meant for spending in 2013, 26.5% in 2014, 24.4% in 2015 and the rest 23.0% for 2016. An amount equal to R$362 million has also been spent in 2012 on a Water Loss Reduction program.

SABESP also posted impressive financial results for the year 2012. Its earnings per share increased 56.2% year over year while revenue inched up 8.2% on the back of higher water supply, sewage collection and treatment, and construction revenue. Fall in cost of sales and services as a percentage of revenue helped push the company's gross margin.

Solid growth prospects and near-term results have raised optimism for even better results for SABESP in the years ahead. The Zacks Consensus Estimate for 2013 now stands at $4.54 per ADR, up 8.9% from a prior estimate provided 30 days ago while estimate for 2014 has gone up 19.9% to US$5.18. Also, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +7.7% for 2013.

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