The Zacks Analyst Blog Highlights: Royal Bank of Scotland Group, Morgan Stanley, Goldman Sachs Group, JPMorgan Chase and Caterpillar

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Sep 23, 2014, 09:30 ET

CHICAGO, Sept. 23, 2014 /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 Royal Bank of Scotland Group plc (NYSE:RBS-Free Report), Morgan Stanley (NYSE:MS-Free Report), Goldman Sachs Group, Inc. (NYSE:GS-Free Report), JPMorgan Chase & Co. (NYSE:JPM-Free Report) and Caterpillar Inc. (NYSE:CAT-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday's Analyst Blog:

Next Big IPO: RBS' Citizens Financial?

As the recent Chinese e-commerce giant Alibaba Group Holding Limited's debut on the New York Stock Exchange (NYSE) marked the world's third largest initial public offering ('IPO') in history, the market is set to witness yet another big IPO. The floatation of Citizens Financial Group Inc – the U.S. retail banking subsidiary of The Royal Bank of Scotland Group plc (NYSE:RBS-Free Report) that aims to raise around $3.5 billion through the IPO – is expected to take place on Tuesday. The company recently completed an investor roadshow spanning two weeks, ahead of the IPO.

Per a recent release, the Royal Bank of Scotland proposes to sell a 25% stake by offloading 140 million shares of Citizens common stock at a price range of $23–25 per share. It has also an option of 30-day over-allotment, which will allow the company to sell an additional 21 million shares. Application has been made to list shares of Citizens on the NYSE under the symbol 'CFG.'

Based in Providence, RI, Citizens, with its strong presence in the market for 186 years, has evolved through meaningful acquisitions and organic growth. In 1988, Royal Bank of Scotland acquired Citizens, which later expanded via 25 acquisitions. Citizens currently being of the biggest regional banks in the U.S., has assets worth $122.2 billion, 18,600 employees and 1,370 branches across New England, mid-Atlantic and Midwest regions.

Morgan Stanley (NYSE:MS-Free Report) and The Goldman Sachs Group, Inc. (NYSE:GS-Free Report) are acting as joint book-running managers while JPMorgan Chase & Co. (NYSE:JPM-Free Report) is serving as joint book runner for the deal.

What the Citizens IPO Means for RBS

Royal Bank of Scotland, which was bailed out with £45 billion by the British government in 2008, revealed in Feb 2013 that it intends to initiate the IPO of RBS Citizens Financial Group in mid-2014. It will gradually exit this subsidiary by 2016 – the deadline set by the European Union as per bailout terms.

Per the recent release, Royal Bank of Scotland CEO Ross McEwan termed the launch of the IPO as "an important milestone for both RBS and Citizens." He said, "The planned divestment will significantly improve RBS's capital foundation and is a further important step in making RBS a strong and secure bank that continues to fully support the needs of its customers."

The government backed banking giant is striving for growth with several restructuring initiatives that include cost reduction measures, increased focus on markets where it has a strong presence and long-term growth prospects, and improvement in its capital ratios.

Bottom Line

The IPO market seems to have gained traction once again. According to Thomson Reuters, so far in 2014, total IPO deals including Alibaba Group have raised $67.1 billion, a whopping 103% increase year over year.

We look forward to the Citizens IPO, which is likely to be the largest in the banking sector following the financial crisis. At a time when the Royal Bank of Scotland is burdened with numerous litigations and operational inefficiencies, we remain optimistic about the IPO, as it will not only enhance the company's capital levels but shift its focus to more profitable markets and pave the way for sustainability and growth in the long run.

Royal Bank of Scotland currently carries a Zacks Rank #3 (Hold).

Caterpillar Bears Brunt of Weak Mining

Shares of mining and construction equipment behemoth, Caterpillar Inc. (NYSE:CAT-Free Report) fell 1.75% as it reported a 10% decline in its global retail sales for the three months ending Aug 2014 due to weak mining demand. Moreover with the Brazilian economy falling into recession, Latin America dragged down results, followed by Asia/Pacific.

21-Month Stretch of Declining Sales

August marked the 21st consecutive month of declining sales for Caterpillar, exceeding the previous 20-month stretch of negative sales reported from Sep 2008 to Apr 2010 due to the global recession. This time, sales growth were in the red since Dec 2012, affected by rising inventories of unsold equipment, weak economic conditions and the slowing down of the Chinese economy, which had earlier been the main driver of construction and mining demand.

Trend So Far in 2014 and August Results

Caterpillar started 2014 with an 8% decrease in sales both in January and February but went further downhill with a 12% drop in March and the 13% reported for April. Within the May-July timeframe the trend displayed minor improvement with drop of 12% for May, 10% for June and 9% for July, triggering hopes of a recovery.

However, hopes soon dampened with sales again dipping 10% in August. Sales dropped in all regions, North America being the only saving grace with an 8% increase. The rate of growth has, however, declined from the 14% growth witnessed in May and June this year. North America had been showing considerable improvement in 2014, as evident from the growth range of 1% to 14% reported so far in the year.

Sales in Latin America plunged 29% in August, the worst performance so far in the year. Sales in Europe, Africa and the Middle East (EAME) plummeted 17%, while in Asia/Pacific it slumped 24%, an improvement from the 29% and 30% drops in June and July, respectively.

Sales in the Resource Industries segment plunged 33% in August, as sales declined across the board. Latin America fared the worst with a 52% slump, followed by EAME and Asia/Pacific with respective declines of 46% and 44%. This does not come as a surprise since sales in Resource Industries will continue to be affected as mining companies have slashed spending in the face of lower commodity prices.

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