Zacks Analyst Blog Highlights: Honda Motor, U.S. Bancorp, BB&T Corp, JPMorgan Chase and Fifth Third Bancorp

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Feb 01, 2011, 09:30 ET

CHICAGO, Feb. 1, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Honda Motor Co. (NYSE: HMC), U.S. Bancorp (NYSE: USB), BB&T Corp. (NYSE: BBT), JPMorgan Chase & Co. (NYSE: JPM) and Fifth Third Bancorp (Nasdaq: FITB).

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Here are highlights from Monday's Analyst Blog:

Auto Sales Pull Down Honda Profit

Honda Motor Co. (NYSE: HMC) posted a 40% decline in profit, reaching 81.12 billion yen ($995 million) or 45.01 yen (55 cents) per share in the third quarter of its fiscal 2011 from 134.63 billion yen or 74.19 yen per share in the same quarter of prior fiscal year. The fall in profit was attributable to decrease in automobile unit sales in all the regions, except North America.

Consolidated net sales and other operating revenues in the quarter slipped 6% to 2.11 trillion yen ($25.90 billion) on the back of unfavorable currency translation and lower automobile sales in Japan, despite increased revenues from the motorcycle business in the Asian countries. At constant exchange rates, Honda's revenues decreased 0.8%.

Consolidated operating profit ebbed 29% to 125.65 billion yen ($1.54 billion) from 176.97 billion yen. This was attributable to increased selling, general and administrative (SG&A) and research and development expenditures as well as unfavorable foreign currency exchange movements that more than offset the positive impact from better model mix and ongoing cost reduction measures.

Guidance

Honda, a Zacks #3 Rank (Hold) stock, has lowered its revenues guidance for the full fiscal 2011 based on lower outlook for unit sales in all the segments. However, the company has upgraded the outlook for operating profit, profit and earnings per share.

For the full fiscal year 2011 ending March 31, 2011, Honda projected a 3.7% increase in revenues to 8.9 trillion yen compared with the earlier projection of a 4.9% increase in net sales and other operating revenues to 9 trillion yen ($108.59 billion).

Unit sales are expected to rise by 1.9 million motorcycles to 11.54 million motorcycles in the Motorcycle segment; 188,000 vehicles to 3.58 million vehicles in the Automobile segment; and 866,000 components to 5.61 million components in the Power Product and Other segment.

These compared with the earlier guidance of a rise in unit sales by 1.19 million motorcycles to 11.49 million motorcycles in the Motorcycle segment; 233,000 vehicles to 3.62 million vehicles in the Automobile segment; and 821,000 components to 5.57 million components in the Power Product and Other segment.

Operating profit expected to increase 70.4% to 620 billion yen compared with the earlier projection of an increase of 37.4% to 500 billion yen. The net profit is anticipated to grow 97.5% to 530 billion yen compared with the earlier guidance of an 86.3% rise in profit to 500 billion yen. Earnings per share are expected to be 293.41 yen compared with the earlier outlook of 276.80 yen.

U.S. Bancorp on Acquisition Spree

U.S. Bancorp (NYSE: USB) is on an acquisition spree. Its lead bank, U.S. Bank National Association has acquired the banking operations of New Mexico based First Community Bank, a subsidiary of First State Bancorporation in a Federal Deposit Insurance Corporation (FDIC) assisted deal.

What's the Deal?

As part of the transaction, approximately $2.1 billion of assets and $2.1 billion of liabilities, including $1.8 billion of insured and uninsured deposits, of First Community Bank would be acquired by U.S. Bank. However, neither any asset nor any liability of First Community Bank's parent holding company, First State Bancorporation, would be acquired by U.S. Bank.

Also, the deal is designed as a bank purchase and assumption transaction en masse without a loss share agreement. An extensive credit due diligence was conducted by U.S. Bank and ultimately First Community Bank was bought for an asset discount of approximately $380 million.

Given its asset base, First Community Bank was New Mexico's third-largest bank. However, severe loan losses from commercial real estate loans had crippled the bank keeping it significantly undercapitalized. Finally, the bank was closed by the New Mexico Financial Institutions Division on January 28, 2011, and FDIC was appointed as receiver.

For U.S. Bancorp, the deal is a strategic fit as the community banking model is an attractive one and the deal adds 35 New Mexico and 3 Arizona branches together with over 50,000 new deposit customers. The company also plans to expand its presence in the state through de novo branch expansion.

Previous Acquisitions

U.S. Bancorp is focused on expanding its business through acquisitions. Recently, its lead bank U.S. Bank completed the purchase of Bank of America's U.S. and Europe-based securitization trust administration businesses. This transaction included $1.1 trillion of assets under administration and provided U.S. Bank with approximately $8 billion of deposits during closure.

The acquisition strengthens U.S. Bancorp's position as a leader in the structured finance trust business and is a great complement to its corporate and municipal trust business. Moreover, the acquisition provides the bank with a prospect of expanding its presence in the European market with offices in Ireland and London, England.

Earlier in 2010, the company completed the purchase of BB&T Corp.'s (NYSE: BBT) banking operations in Nevada. In October 2009, the company had acquired the FBOP Banks in an FDIC-assisted deal. Together, these two transactions added more than 160 branch locations to its franchise and over $15 billion in deposits.

The financial crisis has helped U.S. Bancorp make strategic acquisitions at an affordable price. Such expansions provide the company ample opportunity to boost its revenue stream in the upcoming years.

The largest bank failures in the U.S. banking history was that of Washington Mutual in 2008, which was subsequently acquired by JPMorgan Chase & Co. (NYSE: JPM). Besides JPMorgan and U.S. Bancorp, the other acquirers include Fifth Third Bancorp (Nasdaq: FITB) and BB&T Corp.

Our Take

We expect U.S. Bancorp to benefit from its diversified revenue base and strategic acquisitions, thereby posting growth in core earnings going forward. The company is one of the biggest retail banks in the U.S. and is one of the nation's top 10 banks. It has weathered the economic downturn relatively well.

The improvement in revenue and credit quality is encouraging. Yet, regulatory issues would continue to pose as headwinds to both top and bottom lines. Also, robust growth would remain elusive until we see more tangible signs of economic recovery.

U.S. Bancorp shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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