The Zacks Analyst Blog Highlights:Costco Wholesale, Bank of America, Freddie Mac, Fannie Mae and SVB Financial Group

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Dec 10, 2013, 09:30 ET

CHICAGO, Dec. 10, 2013 /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 Costco Wholesale Corporation (Nasdaq:COST-Free Report), Bank of America Corporation (NYSE:BAC-Free Report), Freddie Mac (OTCBB:FMCC-Free Report), Fannie Mae (OTCBB:FNMA-Free Report) and SVB Financial Group (Nasdaq:SIVB-Free Report).

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

Here are highlights from Monday's Analyst Blog:

Will Costco (COST) Beat Earnings?

Costco Wholesale Corporation (Nasdaq:COST-Free Report) is slated to report its first-quarter fiscal 2014 results on Dec 11, 2013. In the last quarter, it posted a negative surprise of 4.1%. Let's see how things are shaping up for this announcement.

Factors This Past Quarter

Costco posted lower-than-expected fourth-quarter fiscal 2013 results, as the rate of increase in sales decelerated. The warehouse retailer's total revenue climbed 0.8% to $32,487 million from the prior-year quarter, but fell short of the Zacks Consensus Estimate of $32,702 million. Moreover, the top-line growth rate narrowed to 0.8% in the reported quarter from 7.9% in the third quarter of fiscal 2013.

Earnings Whispers?

Our proven model does not conclusively show that Costco is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here, as you will see below.

Negative Zacks ESP: ESP for Costco is -0.98%. This is because the Most Accurate estimate stands at $1.01, while the Zacks Consensus Estimate is pegged at $1.02.

Zacks Rank #3 (Hold): Costco's Zacks Rank #3 (Hold) lowers the predictive power of ESP. The Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with a Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

BofA Gets Nod for $500M RMBS Settlement

In a major development, another litigation overhang has been removed for Bank of America Corporation (NYSE:BAC-Free Report). Recently, the bank received approval from a federal judge regarding the $500 million Countrywide Financial Inc. mortgage settlement deal. Notably, BofA acquired Countrywide in 2008.

The plaintiffs had filed a class action lawsuit against BofA for misrepresenting the quality of underlying home loans in the offer documents while selling residential mortgage-backed securities (RMBS) from 2004 to 2007. Though these RMBS had the highest credit ratings, the housing market collapse in 2008 caused their ratings to fall to "junk" status.

The plaintiffs included Maine State Retirement System, Iowa Public Employees System, the Western Conference of Teamsters Pension Trust Fund and Federal Deposit Insurance Corp. (FDIC), among others.

The settlement between BofA and the plaintiffs was reached in Apr 2013 and it gained preliminary approval from the court in August. However, in October, several investors including FDIC raised objections to the deal on grounds of its lack in fairness and adequacy. Notably, while approving the settlement last week, the U.S. District Court for the Central District of California declared that the deal was fair and reasonable.

The court approval resolves nearly 75% of BofA's RMBS litigation claims related to Countrywide. Additionally, the company is still awaiting court approval for $8.5 billion settlement with nearly 22 institutional investors related to the sale of risky MBS.

Earlier this month, BofA announced a mortgage settlement deal with Freddie Mac (OTCBB:FMCC-Free Report), resolving all outstanding and probable representations and warranties claims on RMBS. The deal is expected to put an end to the company's representations and warranties claims related to loans sold to Freddie Mac and Fannie Mae (OTCBB:FNMA-Free Report) before the financial crisis.

Despite the latest approval, BofA still faces many investigations and litigations on similar issues. These will likely impact its financial stability going forward.

Currently, BofA carries a Zacks Rank #3 (Hold). A better-ranked finance stock worth considering is SVB Financial Group (Nasdaq:SIVB-Free Report), which carries a Zacks Rank #2 (Buy).

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

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