The Zacks Analyst Blog Highlights:Bank of America, CSX, Union Pacific, Norfolk Southern and Genesee & Wyoming

Jan 29, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Jan. 29, 2013 /PRNewswire/ -- 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 Bank of America Corporation (NYSE: BAC), CSX Corporation (NYSE: CSX), Union Pacific Corporation (NYSE: UNP), Norfolk Southern Corp. (NYSE: NSC) and Genesee & Wyoming Inc. (NYSE: GWR).


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Here are highlights from Monday's Analyst Blog:

BofA Transferring Derivatives to UK

According to a Financial Times report, Bank of America Corporation (NYSE: BAC) has started transferring its derivatives operation worth more than $50 billion from Ireland to its UK subsidiary. The move is a part of BofA's restructuring initiative to improve overall efficiency and focus on core operations.

Financial regulators of both Ireland and UK are enthusiastic about such a shift. While Dublin-based regulators are wary of the presence of huge derivatives operations in the country, which are posing a threat to its tax payers, regulators in UK want to have a strong regulatory control over BofA's European operations.

This move would facilitate BofA to benefit from tax breaks arising from the accumulated losses in UK operations. Earlier, many financial firms routed European operations through Dublin as Ireland offered significantly low corporate tax rate. However, this tax rate advantage is gradually losing ground as UK has been lowering the same. Additionally, another tax rate cut to 23% from the present 24% is expected in April.

Further, as per the company's latest disclosures, BofA has more than $8 billion of deferred tax assets (DTAs) in UK. The company can offset profit to lower or totally eradicate its corporate tax bill from these DTAs. Also, there is additional pressure on BofA to fully utilize DTAs as these will not qualify as core capital under the still-to-be-implemented Basel III capital regulations.

The process of this reallocation is expected to be completed by the end of this year. Yet, these are subject to regulatory approval and the amendment of client contracts. BofA will continue to have its corporate banking and cash management businesses in Ireland.

Over the last two years, BofA has eliminated or divested many of its non-core/unprofitable businesses across the globe. This enabled the company to stabilize balance sheet and strengthen the capital ratios. Further, the company's non-interest expenses have declined nearly 6.5% year over year to $72.1 billion in 2012.

CSX Building Out in Quebec

CSX Corporation (NYSE: CSX) plans to build an intermodal facility in Quebec. The construction will include an intermodal rail terminal using 89 acres of land, connecting CSX' intermodal network across the U.S. We expect the new development project to benefit the company's growing freight business and thereby lead to revenue accretion.

CSX Corp. continues to invest in expanding network and terminal capacity, as well as enhancing safety, service and reliability for its customers. The company launched the National Gateway, a multi-year public-private infrastructure initiative, which will significantly improve the efficiency of the freight network between the Mid-Atlantic ports and the Midwest. Total project costs are approximately $850 million, of which CSX Corp. expects to contribute approximately over $550 million.

Additionally, CSX Corp. entered into a deal with Florida state regulators to deploy computerized rail operation called SunRail. The contract entails CSX to sell a 61-mile rail corridor to the State of Florida and in exchange receive exclusive rights to operate on the SunRail track. The new system is expected to start operating in 2014.

Going forward, CSX plans to invest the $500 million sale proceeds of the deal for the development of Florida rail infrastructure. Overall, the company invested $2.2 billion in 2012 and estimates the investment of $2.3 billion in 2013.

We expect these investments to remain accretive over the long term, supporting volume growth. However, given the current economic backdrop, these investments can weigh on the margins in the foreseeable future until there is significant improvement in the market fundamentals that will drive revenues upward.

Besides CSX, other companies that accelerated their capital investments in railroad development include Union Pacific Corporation (NYSE: UNP) and Norfolk Southern Corp. (NYSE: NSC). Last year, Union Pacific invested approximately $3.7 billion and Norfolk Southern spent approximately $2.2 billion.

Other Stocks Another stock worth considering within the sector is Genesee & Wyoming Inc. (NYSE: GWR) that holds a Zacks Rank #1 (Strong Buy rating).

Currently, CSX Corporation has Zacks Rank #5 (Strong Sell) rating.

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