The Zacks Analyst Blog Highlights: Citi Trends, The Goldman Sachs Group, M&T Bank, The Allstate Corporation and Freddie Mac

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Aug 19, 2011, 09:30 ET

CHICAGO, Aug. 19, 2011 /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: Citi Trends Inc. (Nasdaq: CTRN), The Goldman Sachs Group Inc. (NYSE: GS) M&T Bank Corp. (NYSE: MTB) The Allstate Corporation (NYSE: ALL) and Freddie Mac (OTC: FMCC).

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Here are highlights from Thursday's Analyst Blog:

Citi Trends' Net Loss Widens

Citi Trends Inc. (Nasdaq: CTRN) recently reported disappointing second-quarter 2011 results. The company's net loss widens 16 folds to $10.0 million compared with $0.6 million in the year-ago quarter.

Net loss per share came in at 69 cents versus 4 cents in the year-ago quarter, primarily due to negative comparable store sales. Moreover, net loss was higher than the Zacks Consensus Estimate of 64 cents per share.

During the quarter, Citi Trends recorded a 0.9% year-over-year growth in net sales to $130.2 million, missing the Zacks Consensus Estimate of $131.0 million. Comparable store sales dropped 11.9% in the second quarter of fiscal 2011.

Citi Trends' gross profit plunged 10.0% from the prior-year period to $43.5 million, mainly due to higher cost of sales. Gross margin came in at 33.4% compared with 37.4% in prior-year quarter.

Selling, general and administrative expenses increased 14.1% year over year to $50.7 million. Accordingly, the company's operating loss increased almost 16 folds to $15.2 million compared with $0.9 million in the year-ago period.

Citi Trends ended the quarter with a debt-free balance sheet and cash and cash equivalents of $49.5 million compared with $84.6 million in the prior-year period. Shareholders' equity at the end of the quarter was $208.7 million compared with $195.6 million in the year-ago period.

Goldman Pressed with Allegations

The Goldman Sachs Group Inc. (NYSE: GS) and two of its mortgage subsidiaries, along with M&T Bank Corp. (NYSE: MTB) was sued by bond insurer CIFG Assurance North America Inc. The complaint lodged claims that Goldman and M&T Bank misrepresented documents and convinced CIFG to insure mortgage-backed securities worth $275 million.

CIFG alleged that Goldman and its subsidiaries along with M&T Bank issued misleading statements and omissions related to the mortgage-backed securities from a portfolio of 6,204 loans, most of which were made by M&T Bank, which has concealed risks associated with the securities.

The bond insurer also claimed that Goldman and M&T Bank did not fully reveal the quality of the securitized portfolio and concerns associated with the mortgage market. Goldman sold the portfolio GSAA Home Equity Trust 2007-S1 in February 2007 after getting it insured from CIFG by presenting untrue statements.

CIFG has filed lawsuit in the New York State Supreme Court in Manhattan. The company's demands for damages include repayment of compensation, to be paid by CIFG and an order for Goldman and M&T Bank to repurchase the nonperforming loans from the portfolio.

Earlier this week, Goldman was also sued by The Allstate Corporation (NYSE: ALL), the largest publicly traded U.S. home and auto insurer. The complaint lodged claims that Goldman misrepresented documents as an underwriter in the sale of over $123 million in mortgage-backed securities from April 2006 to March 2007.

Last week, Goldman was sued by National Credit Union Administration (NCUA), the U.S. regulator of credit unions. The complaint lodged claims that Goldman violated federal and state securities laws and misrepresented documents as an underwriter in the sale of $1.2 billion in mortgage-backed securities.

However, the regulators are proactively trying to recover losses of credit unions through lawsuits against banks that were involved in malpractices related to selling mortgage-backed securities. The proceeds from these lawsuits would increase NCUA's insurance and emergency support funds to a considerable extent.

Earlier in July, Goldman was also sued by Liberty Mutual Insurance Co. and several other investors including Peerless Insurance Co., Employers Insurance Co., Safeco and Liberty Life Assurance Co. for misrepresenting the financial condition of Freddie Mac (OTC: FMCC) as an underwriter of Freddie's offering of Series Z preferred stock in late 2007.

According to the lawsuit, Freddie Mac issued 240 million shares of Series Z preferred shares in November 2007, which increased approximately $5.9 billion. The shares were supported by billions of dollars in subprime residential mortgages. The investors alleged that Goldman misled them with statements and omissions related to the preferred stock offering based on which they invested $37.5 billion.

Last year, Goldman settled a charge by paying $550 million for not disclosing the buyers the role of a hedge fund in formulating the CDOs and taking a short position and betting on them to perform poorly in the open market. The SEC has stepped up its investigation on Wall Street companies over the sale of CDOs that were responsible for significant losses suffered by the investors and financial crisis.

The continuous increasing number of lawsuits will dent Goldman's reputation and its financials, though investors, who have lost their hard-earned money in such investments, should feel relieved.

Shares of Goldman currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. However, considering the fundamentals, we maintain a long-term Underperform recommendation on the stock.

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