The Zacks Analyst Blog Highlights: Wells Fargo, Morgan Stanley, Royal Bank of Scotland Group, Tenet Healthcare and Cigna

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Jul 31, 2012, 09:30 ET

CHICAGO, July 31, 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 Wells Fargo & Company (NYSE:WFC), Morgan Stanley (NYSE:MS), Royal Bank of Scotland Group Plc. (NYSE:RBS), Tenet Healthcare Corporation (NYSE:THC) and Cigna Corp. (NYSE:CI).

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Here are highlights from Monday's Analyst Blog:

Wells Fargo Adding Jobs

In an effort to expand its business and augment its top line, Wells Fargo & Company (NYSE:WFC) is adding jobs both in the U.S. as well as in Asia. Its brokerage unit, Wells Fargo Advisors, is growing its St. Louis office and intends to create 400 jobs in the city, according to a report by the Associated Press.

As per the plan, Wells Fargo will expend about $33 million for refurbishing its downtown St. Louis headquarters. However, the company will receive support from the state. It will get an economic incentive package in the form of $12.6 million in tax credits. Moreover, $540,000 is also being offered by the state in New Jobs Training Incentives.

The 400 jobs will be added in a span of three years. Besides adding jobs, these 400 positions will also result form employees consolidation from other cities including Minneapolis.

Notably, in the past decade-and-a-half, consolidating activities on part of companies resulted in several headquarters moving out of St. Louis. However, the region is still an important place in the financial firms sector.

Increasing Workforce in Asia

Besides boosting its workforce in the U.S., Wells Fargo also intends to augment its staff strength in Asia, according to Bloomberg news. In the next three years, the company plans to augment its workforce by at least 10%. This comes amidst cut down of jobs by a number of its rivals such as Morgan Stanley (NYSE:MS) and Royal Bank of Scotland Group Plc. (NYSE:RBS).

While its rivals are either slashing growth or trimming workforce in the region to lower their cost base, Wells Fargo intends to add over 400 jobs for its 4,200 people squad in the region. This would also include about 20 hires in Hong Kong by the end of 2012 and around 15 to 20 in China in the next four quarters.

Wells Fargo's rivals had significant equity and debt capital markets businesses in the region that are facing slowdowns, and therefore these companies are slashing their jobs. However, compared to its rivals, Wells Fargo is more into the traditional banking business, which is enabling it to more easily stay afloat.

Our Take

Given its diverse geographic and business mix, Wells Fargo stands to benefit from consistent earnings growth. It has achieved the tenth consecutive quarter of growth in earnings by reporting EPS of 82 cents per share in the second quarter of 2012, representing 17% year-over-year growth based on improvements in mortgage banking as well as credit quality.

We believe that workforce expansion in select markets will augment its business and position it better compared to peers. Moreover, strategic acquisitions will help expand the company's business and improve its profitability. It is also capitalizing on the deleveraging activities of the European banks.

Notably, in recent times, in an effort to boost its subscription finance business, Wells Fargo has agreed to buy WestLB's $6 billion subscription finance portfolio. Such moves augur well and position the company for better growth in the years ahead.

Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we also maintain a Neutral recommendation on the stock.

Tenet Raised to Outperform

We are upgrading our recommendation on Tenet Healthcare Corporation (NYSE:THC) to Outperform based on its consistent revenue growth and improved earnings guidance.

Tenet is scheduled to release its second-quarter 2012 financial results before the market opens on August 7. The Zacks Consensus Estimate for earnings for the quarter currently stands at 5 cents per share, down about 45% from the year-ago quarter.

Tenet has been generating consistent growth in operating revenues since 2006. The first quarter of 2012 also witnessed operating revenue growth of 2.2% year over year to $2.35 billion. The improved results were attributable to significant contributions from Tenet's general hospitals, which have accounted for more than 96% of the net operating revenues for all periods.

Further, Tenet has been steadily expanding its operating capacity via acquisitions and alliances. It's subsidiary Conifer's alliance with Catholic Health Initiatives in May 2012 to provide revenue cycle services is expected to boost revenues, as Catholic Health generates over $6 billion annually in patient revenues. The recent renewal of the service contract with Cigna Corp. (NYSE:CI) is also encouraging, as it is one of the largest contracts owned by the company.

However, Tenet has been experiencing high levels of operating expenses in the past few years due to the impact of various industry-wide and company-specific challenges. Operating expenses increased in the first quarter of 2012 as well, to $2.15 billion from $2.04 billion in the year-ago quarter.

Moreover, Tenet has been experiencing a tough time since the onset of 2012 as far as legal cases are concerned. The $42.75 million civil settlement in April 2012 regarding the over-billing of Medicare, is expected to substantially reduce Tenet's cash balance, although the company had created a reserve for the same during 2011. Moreover, the dismissal of the lawsuit that Tenet filed against Community Health in April is expected to weigh on the company's expenses.

Currently, Tenet carries a short-term Zacks #2 Rank (Buy).

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