The Zacks Analyst Blog Highlights: Freddie Mac, Fannie Mae, BankUnited, Comerica and Yum! Brands
Nov 22, 2013, 09:30 ET
CHICAGO, Nov. 22, 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 the Freddie Mac (OTCBB:FMCC-Free Report), Fannie Mae (OTCBB:FNMA-Free Report), BankUnited, Inc. (NYSE:BKU-Free Report), Comerica, Inc. (NYSE:CMA-Free Report) and Yum! Brands Inc. (NYSE:YUM-Free Report).
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Here are highlights from Thursday's Analyst Blog:
Freddie, Fannie Recapitalization Plan Rejected
Recently, Miami-based equity fund manager Fairholme Capital Management LLC's plan to recapitalize Freddie Mac (OTCBB:FMCC-Free Report) and Fannie Mae (OTCBB:FNMA-Free Report) was rejected by the White House. The National Economic Council Director Gene Sperling stated that recapitalization would create two new 'too big to fail' financial institutions.
Last week, Fairholme had announced its intention to acquire the insurance businesses of these two Government Sponsored Enterprises (GSEs) – Freddie Mac and Fannie Mae – through exchange of equities worth $52 billion. Fairholme is the largest stakeholder of preferred shares in these two GSEs.
This recapitalization plan would have resolved the uncertainty related to the future of Freddie Mac and Fannie Mae and freed them from government control. However, any proposal to recapitalize these GSEs requires government approval.
Freddie Mac and Fannie Mae, that own or guarantee nearly 67% of all the U.S. residential loans, were on the brink of collapse in 2008. The U.S. government bailed out the companies by taking approximately 80% stakes in both. Though an aggregate of $188 billion of capital was infused in these GSEs, the major part of it has been returned to the government in the form of dividends.
Additionally, if Freddie Mac and Fannie Mae were recapitalized, they would have likely dominated the mortgage market and possessed economies of scale. All these would restrict the entry of new firms in the market.
The government is against such a duopoly and wants to build a stronger mortgage market with scope for healthy competition among firms. Further, the government intends to restructure the entire housing mortgage market through housing finance reforms.
At present, both Freddie Mac and Fannie Mae have a Zacks Rank #3 (Hold). Some better-ranked finance stocks include BankUnited, Inc. (NYSE:BKU-Free Report) and Comerica, Inc. (NYSE:CMA-Free Report). Both these carry a Zacks Rank #2 (Buy).
Yum! Reorganizes Business Units
Louisville, Kentucky-based restaurant giant, Yum! Brands Inc. (NYSE:YUM-Free Report) recently announced a complete restructuring of its business divisions. According to the reshuffling, the company will be merging its Yum! Restaurants International (YRI) and the U.S. divisions for each of its three brands — KFC, Pizza Hut and Taco Bell.
However, the company will continue to operate its other two divisions — Yum! Restaurants China and Yum! Restaurants India — separately on expectations of potential growth. This reorganization is an attempt by the Yum! Brands to improve its brand recognition and concentrate on individual geographical markets, thus boosting its business.
These structural changes are expected to take effect from Jan 1, 2014. From the beginning of fiscal 2014, Yum! Brands will be posting its financial results for the following divisions — KFC, Pizza Hut, Taco Bell, Yum! Restaurants China and Yum! Restaurants India. The company will no longer be providing separate results for the U.S. and YRI divisions.
As part of the realignment, Yum! Brands also announced few executive changes. Rick Carucci, the President of Yum! Brands, will step down in Mar 2014.
Niren Chaudhary — President of Yum! Restaurants India — and Sam Su — vice chairman of Yum! Brands and chairman as well as Chief Executive Officer (CEO) of Yum! Restaurants China — will be reporting to David C. Novak — CEO of Yum! Brands. Additionally, the CEOs of all the three brands will now be directly working under Novak. These leadership changes are in line with YUM! Brands' focus on streamlining its organizational structure.
YUM! Brands' initiative to restructure its business comes in the wake of witnessing disappointing financial results for the past few quarters due to weak performance in its China division. China, which once played a pivotal role in the company's growth story, began to falter after fourth-quarter 2012 due to bad publicity resulting from the quality issue. Moreover, poor sales performance at KFC China in September compelled YUM! Brands to state that the China comps will continue to be down in the fourth quarter.
YUM! Brands has a Zacks Rank #4 (Sell).
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