The Zacks Analyst Blog Highlights: JPMorgan Chase, Fannie Mae, Freddie Mac, Citigroup and Newmont Mining

For Immediate Release

Chicago, IL – October 31, 2013 – 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 JPMorgan Chase Co. (JPMFree Report), Fannie Mae (FNMAFree Report), Freddie Mac (FMCCFree Report), Citigroup Inc. (CFree Report) and Newmont Mining Corporation (NEMFree Report).
 
Today, Zacks is promoting its ”Buy” stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday’s Analyst Blog:

JPMorgan Settlement in Trouble
 
JPMorgan Chase Co. (JPMFree Report) is in hot water again with the rise of new problems related to its tentative multi-billion dollar settlement. The news has been confirmed by sources familiar with the matter.

The primary bone of contention between the banking behemoth and the U.S. Justice department revolves around litigations related to Washington Mutual Inc. The mortgage lender sold risky mortgage backed securities (:MBS) to Fannie Mae (FNMAFree Report) and Freddie Mac (FMCCFree Report) during 2005–2007. Later in 2008, the troubled mortgage lender was acquired by JPMorgan at the request of the Federal Reserve.

Thereafter, JPMorgan has been avoiding the litigations related to the acquired units and expects Federal Deposit Insurance Corporation to bear the legal expenses. The government, however, believes that the legal liabilities belong to JPMorgan and hence the settlement fine should be paid by the company.

JPMorgan additionally wants to resolve certain ongoing criminal probes on Washington Mutual mortgage business pertaining to the period before the financial crisis. This may have given birth to fresh conflict.

The company now intends to focus on its business and regain shareholders’ confidence. However, this will be difficult if there is any delay in the settlement, which would consequently increase expenses and hamper earnings as well.  

Last week, JPMorgan announced a settlement with the Federal Housing Finance Agency (:FHFA) related to the sale of home loans and MBS. Though the banking major did not publicly admit any malpractice, it has agreed to pay about $5.1 billion as settlement. Among other banks, USB AG and Citigroup Inc. (CFree Report) had also settled their cases with the FHFA earlier this year.

JPMorgan currently carries a Zacks Rank #3 (Hold).
 
Will Newmont (NEM) Miss Earnings?
 
Gold miner Newmont Mining Corporation (NEMFree Report) is scheduled to report third-quarter 2013 results after the closing bell on Oct 31. It delivered a 124.39% negative surprise in the last reported quarter. The company slipped to a loss in the quarter, hurt by a sizable impairment charge. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Newmont is expected to continue to face headwinds due to higher mining and non-mining costs. Gold costs jumped 30% from the last year in second-quarter 2013, impacted by write-downs due to lower gold prices. In addition, copper costs surged more than three-and-a-half-fold year over year in the quarter.

Higher operating costs may weigh on Newmont’s bottom line in the third quarter. The company is currently exploring means (including employee layoffs) to cut costs to remain competitive amid a challenging business environment.

Moreover, lower ore grades are affecting production across a number of operations. Newmont’s production remains challenged at the Batu Hijau mine in Indonesia as certain geo-technical issues are still impacting weight stripping capability. Gold production from the mine tumbled 25% year over year in the second quarter. The company may face similar challenges in its Indonesian operation in the third quarter.

Newmont recently cut its copper production outlook for 2013 based on lower-than-expected mill throughput at the Boddington mine in in Australia and lower-than-expected ore grade at the Batu Hijau mine. Nevertheless, the company backed its gold production outlook for the full year and expects to benefit from higher mill throughput in Nevada.

Earnings Whispers?

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

Negative Zacks ESP: The ESP for Newmont is -3.13% – the difference between the Most Accurate estimate of 31 cents and the Zacks Consensus Estimate of 32 cents. This indicates a likely negative earnings surprise.

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