The Zacks Analyst Blog Highlights: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Costco Wholesale

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Apr 13, 2012, 09:30 ET

CHICAGO, April 13, 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 JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corporation (NYSE: BAC), Citigroup Inc. (NYSE: C), Wells Fargo & Company (NYSE: WFC) and Costco Wholesale Corporation (Nasdaq: COST).

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Here are highlights from Thursday's Analyst Blog:

Foreclosures Declined in Q1

In the first quarter of 2012, foreclosure activity has fallen to the lowest level since the fourth quarter of 2007. This was reported by RealtyTrac, the leading online marketplace of foreclosure properties, while releasing its foreclosure market report. According to the report, foreclosure filings for the reported quarter dipped 2% from the prior quarter and 16% from the prior-year quarter, with a total of 572,928 properties receiving default, auction or repossession notices.

Though there was a drop in foreclosures in the first quarter of 2012, these will surely increase in the upcoming months following the $25 billion settlement deal that took place between five mortgage servicers – JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corporation (NYSE: BAC),Citigroup Inc. (NYSE: C), Ally Financial Inc. and Wells Fargo & Company (NYSE: WFC), 49 states' attorneys general and the regulators. The deal is expected to speed up the rate of the foreclosure activities across the nation, which was almost frozen till now.

The major indicator, which confirmed that the foreclosures will shot up over the next several months, is the rise in the default notices issued and foreclosure auctions (depending on the state's foreclosure procedure). Default notices increased 7% in March 2012 from the previous month, but fell 11% from the prior-year month.

Additionally, properties foreclosed in the first three months of 2012 took an average of 370 days to complete the foreclosure process, up from 348 days in the previous quarter. Further, the top 10 states with the highest foreclosure activities were California, Florida, Illinois, Georgia, Michigan, Arizona, Texas, Ohio, Pennsylvania and Wisconsin.

Moreover, the primary reason for the dip in overall foreclosures for the quarter under review is the decline in foreclosure activity in 24 states with a non-judicial foreclosure process. In these states, foreclosures declined 8% from December 2011 quarter and 28% from March 2011 quarter to 329,854 properties.

However, the 26 states, where a judicial foreclosure process is followed, witnessed an increase in foreclosures. Here, foreclosure filings surged 8% from the prior quarter and 10% from the prior-year quarter, with a total of 243,074 properties receiving default, auction or repossession notices.

In Conclusion

With nearly all the problems related to flawed paper work getting resolved, the downtrend in foreclosures will get reversed very soon. Moreover, the settlement deal clearly describes the procedures to be followed while foreclosing a property. This will allow the mortgage servicers to step up the foreclosure activities.

Also, there will be additional pressure on the home prices across the nation as many properties are expected to come to the market due to increased foreclosure activities. Though the huge surge in foreclosures may dampen the housing prices in the near-term, this will enable the housing market to revive over the longer term.

Moreover, we hope that there would be enough number of buyers for these properties; otherwise the housing market will have a little chance to regain a solid foothold. As for now, we should gear up to see an exceptional rise in foreclosure activities in the upcoming quarters.

Costco's Balanced Approach

Costco Wholesale Corporation (Nasdaq: COST) continues to be a dominant retail wholesaler based on the breadth and quality of merchandises it offers. The company's strategy to sell products at heavily discounted prices has helped it to remain on a positive growth track amid beleaguered economic conditions as budget-conscious customers continue to see it as a viable option for low-cost necessities. Having delivered comparable-store sales growth consistently, Costco is well positioned in the warehouse club industry.

Comps Remain Healthy

The company sustains its sales momentum as it moves further into 2012. After an 8% increase in February, Costco's comparable-store sales for the month of March climbed 6%, reflecting comparable sales growth of 6% at its U.S. locations and 7% at its international divisions. In the prior-year period, the company delivered comparable-store sales growth of 13%.

Excluding the effects of higher gasoline prices and foreign currencies fluctuation, Costco's comparable-store sales for March climbed 6%, with U.S. and international comparable sales increasing 5% and 9%, respectively.

The Drives

A differentiated product range enables Costco to provide an upscale shopping experience to its members, resulting in market share gains and higher sales per square foot. Moreover, the company continues to maintain a healthy membership renewal rate. Costco also remains committed to opening new clubs in domestic and international markets. The company's diversification strategy is a natural hedge against risks that may arise in specific markets.

Healthy Quarterly Results

Consumers seeking discounts started flocking to warehouse clubs, leading to improved sales of discretionary items. Consequently, Costco witnessed double-digit growth in the top line during the second quarter of 2012 that subsequently led to an increase in the bottom line. The company's international operations have been the major driver.

Costco's second quarter earnings of 90 cents a share came ahead of the Zacks Consensus Estimate of 88 cents, and rose 13.9% from 79 cents earned in the prior-year quarter. In the first quarter of 2012, the company had posted 12.7% growth in the bottom line

After registering a growth of 12.4% in the first quarter, the warehouse retailer's total revenue, which includes net sales and membership fee, climbed 10% year over year to $22,967 million during the second quarter, surpassing the Zacks Consensus Estimate of $22,737 million. Net sales jumped 10.1% to $22,508 million, whereas membership fee rose 7.7% to $459 million.

Costco's comparable-store sales for the quarter rose 8%, reflecting a comparable sales increase of 8% both at its U.S. locations and international divisions. The results were favorably impacted by rising gasoline prices, but adversely affected by foreign exchange fluctuations.

Closing Commentary

Based on the pulse of the economy, we believe that budget-constrained consumers will remain watchful of their spending and look for discounts. Consequently, we could see competitive pricing, compelling products and innovative ways to attract shoppers.

Given the pros and cons, we maintain our long-term "Neutral" recommendation on the stock. Moreover, Costco holds a Zacks #3 Rank that translates into a short-term 'Hold' rating.

Costco currently operates 601 warehouses, which include 434 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea and 3 in Australia.

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