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The Zacks Analyst Blog Highlights: Xerox, Canon, Lexmark International, Bank of America and Mitsubishi UFJ Financial Group

XRX CAJ LXK BAC MTU

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For Immediate Release

Chicago, IL – August 15, 2012 – 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 Xerox Corporation (XRX - Analyst Report), Canon, Inc. (CAJ - Snapshot Report), Lexmark International Inc. (LXK - Analyst Report), Bank of America Corporation (BAC - Analyst Report) and Mitsubishi UFJ Financial Group Inc. (MTU - Analyst Report).
 

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Here are highlights from Tuesday’s Analyst Blog:

Xerox Downgraded to Underperform

 

We have lowered our long-term recommendation on Xerox Corporation (XRX - Analyst Report) to Underperform from Neutral due to the lackluster performance of the company’s Technology business. With the sluggish economy still recovering, Xerox may face more headwinds going forward.

Advancements in information technology have replaced traditional means of sending and storing information by digital media. As a result, Xerox and other document industry firms are bearing the brunt of a slowdown in demand for paper-related systems and products.

Xerox also faces stiff competition from other players in the industry such as Canon, Inc. (CAJ - Snapshot Report) and Lexmark International Inc. (LXK - Analyst Report). Moreover, they are broadening their product portfolio and global presence in almost the same way as Xerox.

Xerox posted mixed results in the second quarter of 2012, with adjusted earnings of 26 cents a share which was in line with the Zacks Consensus Estimates but lower than the year-ago quarter by a penny. Revenues declined 1% (up 1% in constant currency) year over year to $5.54 billion, missing the Zacks Consensus Estimate of $5.58 billion.

The company anticipates that the economic downturn will further take a toll on its businesses and has subsequently lowered its full-year earnings outlook. Xerox now expects adjusted earnings between $1.07 and $1.12 per share, down from its earlier projection of $1.12 to $1.18.

However, Xerox is making positive moves in its government healthcare, financial services and retail, travel and insurance businesses. In addition, new partner print services offerings and new signings were other positive takeaways from the recently reported quarter.

However, we believe that economic weakness in Europe and intense competition from its peers might affect the company’s operations. We are also concerned about its rising debt level, which stood at $9.2 billion as of June 30, 2012, compared with $8.6 billion as of December 31, 2011.

Our long-term Underperform recommendation on Xerox is backed by a Zacks #4 Rank, reflecting a short-term (1 to 3 months) Sell rating.

 

 

BofA Offloads Non-US Wealth Units

 

Bringing an end to months of speculation, Bank of America Corporation (BAC - Analyst Report) is finally divesting its international wealth management operations to Switzerland-based private bank, Julius Baer Group, for nearly CHF860 million ($882 million).

The decision to offload these units is a part of BofA’s long-term strategy to build up capital and divest its non-core and unprofitable businesses.

BofA stated that Julius Baer will be paying approximately 1.2% of total client assets ($84 billion as of June 30, 2012). Further, out of the total consideration, the company will receive roughly CHF240 million ($246 million) worth of Julius Baer’s common shares (nearly 3% shareholding) and the remaining in cash.

However, BofA commented that the final selling price will be based on assets under management (AUM) at the time of the deal's closure. The transaction, which is still subject to regulatory approvals, is expected to close by the end of this year or early next year.

Additionally, the divestiture does not include BofA’s joint venture with Mitsubishi UFJ Financial Group Inc. (MTU - Analyst Report) − Mitsubishi UFJ Merrill Lynch PB Securities. Also, the company’s international wealth management offices based in U.S. are not a part of the deal.

Further, BofA and Julius Baer have entered into a separate agreement under which BofA would be offering global equity research and structured and advisory products to the Swiss bank.

For Julius Baer, the deal would boost its AUM by 40% and be accretive to its earnings from the third full year of the closure of the deal. Nevertheless, the acquisition would lead to restructuring, integration and retention charges of about CHF400 million.

Moreover, the transaction would further diversify Julius Baer footprints in faster growing emerging markets − Asia, Latin America and the Middle East.

To finance its agreement with BofA, apart from terminating the share repurchase authorization, Julius Baer will utilize the available cash (CHF 530 million) and raise nearly CHF750 million through rights issue. The total cash thus accumulated will be used to consummate the aforesaid deal and also fund future acquisitions.

BofA has been actively divesting its non-core and unprofitable operations since the last two years. The company has been doing so in order to recover from losses related to its acquisition of Countrywide Financial in 2008 and meet regulatory capital requirements.

 

 

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