The Zacks Analyst Blog Highlights: PNC Financial Services, Flagstar Bancorp, Royal Bank of Canada, BankAtlantic Bancorp and AutoNation

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Dec 13, 2011, 09:30 ET

CHICAGO, Dec. 13, 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 PNC Financial Services Group Inc. (NYSE: PNC), Flagstar Bancorp Inc. (NYSE: FBC), Royal Bank of Canada (NYSE: RY), BankAtlantic Bancorp Inc. (NYSE: BBX) and AutoNation Inc. (NYSE: AN).

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Here are highlights from Monday's Analyst Blog:

PNC Beefs Up Atlanta Portfolio

PNC Financial Services Group Inc. (NYSE: PNC) is in an expansion mode. Last week, the company completed acquiring the 27-branch retail bank franchise in Georgiafrom Flagstar Bank, a subsidiary of Flagstar Bancorp Inc. (NYSE: FBC).

Flagstar Bank sold the leases associated with the branches and the associated businesses and retail deposits worth approximately $210 million at the closing. PNC paid the Bank net book value of the acquired real estate and fixed and other personal assets associated with the branches.

A Win-Win situation

The deal is a strategic fit for both PNC Financial and Flagstar Bank. For PNC Financial the acquisition will expand operations in Atlanta and add to its competitive edge. With over 70 branches located in the Atlanta metro area, including those that it plans to add from its pending acquisition of RBC Bank (USA), this purchase would aid in expanding its retail banking business. It would also leverage its corporate banking and wealth management prospects.

On the other hand, the sale of these branches would facilitate Flagstar to focus on its core markets. Efforts and resources can be employed to enhance the Michigan retail and commercial banking divisions and New England commercial banking operations.

PNC Financial was already one of the leading bank wealth managers in the country. The acquisition of National City in December 2008 has clearly strengthened its position and created a significant growth potential in new high-net-worth and institutional markets. The acquisition increased its deposit base and provided a larger distribution platform for cross-selling the company's products and services.

In an effort to expand its business in the Southeast markets, PNC Financial has also signed a definitive agreement to purchase RBC Bank (USA), the U.S. retail banking subsidiary of Royal Bank of Canada (NYSE: RY). This acquisition would make PNC Financial the fifth among U.S. banks, with 2,870 branches. The deal is expected to close in the first quarter of 2012.

PNC expects the acquisition of RBC Bank (USA) to be immediately accretive to earnings (excluding integration costs) upon closing. The acquisition remains subject to regulatory approvals, including that from the Board of Governors, and other customary closing conditions.

In mid-2011, PNC Financial also completed the acquisition of 19 branches from a subsidiary of BankAtlantic Bancorp Inc. (NYSE: BBX). Additionally, two related facilities in the Tampa - St. Petersburg area and associated deposits were also handed over to PNC as part of the sale.

PNC's continued strengthening of balance sheet, with focus on risk and expense management, should propel its earnings ahead. Benefits from the 2008 National City acquisition continue to exceed the company's expectations. We also believe that the company's latest acquisition spree would be accretive to its revenue.

Yet, the top line is expected to remain subdued in the near term, with continued soft demand for loans and a low interest rate environment. Regulatory issues also remain an overhang.

PNC shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering its fundamentals, we also have a Neutral recommendation on the stock.

New Credit Agreement for AutoNation

AutoNation Inc. (NYSE: AN) recently signed a new unsecured credit agreement, comprising a $500 million term loan facility and a $1.2 billion revolving credit facility, valid till December 07, 2016. This new agreement replaces AutoNation's existing credit agreement due 2012 and 2014. Last month, the company announced that it is in talks with lenders regarding the new credit agreement.

The new agreement also allows the company to raise the amount of the term loan as well as the revolving credit facility by up to $500 million in aggregate depending on credit availability. Moreover, it is expected to reduce the company's borrowing costs through lowered reduced interest rate spreads as compared with the previous credit agreement due 2014.

AutoNation is the largest automotive retailer in the U.S. and is about twice the size of its nearest competitor. As of September 30, 2011, the company owned and operated 257 new vehicle franchises located in major metropolitan markets across 15 states, with about 75% of sales being focused toward the Sunbelt region of the U.S. (with 50% in Florida and California).

In the last reported quarter, AutoNation posted a profit of 48 cents per share compared with 39 cents per share in the third quarter of 2010. Total revenue increased 7% to $3.5 billion, driven mainly by higher new and used vehicle average selling prices.

Gross profit rose 5% to $575 million from $545 million in the year-ago period. The year-over-year upside in gross profit was attributable to an increase in retail new vehicle gross profit, as well as a rise in finance and insurance gross profit. Operating profit was $144.1 million, up 19% from $120.9 million a year ago.

AutoNation's efforts to expand its dealer network by investing in existing stores and service centers will help it outgrow its peers. The company believes new vehicle sales will continue to improve based on the long-term recovery of the U.S market.

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