KBH KB Home

For Immediate Release

Chicago, IL – March 2, 2012 – Zacks Equity Research highlights: Texas Capital Bancshares ( TCBI) as the Bull of the Day and KB Home ( KBH) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on State Street Corporation ( STT), Deutsche Bank AG ( DB) and Bank of America Corporation ( BAC).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.

Here is a synopsis of all five stocks:

Bull of the Day:

We are upgrading our recommendation on Texas Capital Bancshares ( TCBI) to Outperform from Neutral following a better-than-expected fourth quarter 2011 earnings result which was backed by an increase in net interest income. The improvements in the credit quality metrics were also quite impressive.

Texas Capital's business model remains a chief growth driver. Additionally, the gain in market share from its competitors as well as organic growth augurs well. The company's efforts to hire experienced bankers and expand its presence are encouraging.

Though the resultant expenses that continue to grow remain a concern, going forward we believe that with an eventual improvement in the Texan economy, the company would be further poised to experience an increase in earnings. Our six-month target price of $39.00 equates to 16.6x our earnings estimate for 2012. This price target implies an expected total return of 18.7% over that period.

Bear of the Day:

KB Home ( KBH) faces a fragile housing market. Increased availability of housing alternatives may keep the company's earnings under pressure. Furthermore, the company's housing market is highly concentrated, which poses threats to its earnings performance.

The company did post a profit of $0.18 per share during the fourth quarter of fiscal 2011, which was much higher than the Zacks Consensus Estimate of $0.03. Nevertheless, the negative factors have led us to downgrade the recommendation on shares of KB Home from Neutral to Underperform with a target price of $10.00.

Our long-term Underperform recommendation on the stock indicates that it will perform lower than the overall market. Our $10 target price, 25.0X our 2013 EPS estimate, reflects this view.

Latest Posts on the Zacks Analyst Blog:

State Street Fined for Failed CDO

State Street Corporation ( STT) has been penalized by Massachusetts state regulators for its alleged role in marketing and selling risky collateralized debt obligation (CDO) without disclosing proper information to its clients. The company has been asked to pay a total of about $5 million ($3.54 million as fees and profits earned on the deal and $1.45 million as penalty).

In 2006, as an investment manager for a CDO, known as Carina CDO Ltd., State Street was helped by Magnetar Capital LLC, a hedge fund in selecting the assets that were included in the CDO. In addition to this, the company was approached by Deutsche Bank AG’s ( DB) Deutsche Bank Securities unit to market and sale the CDO.

However, Magnetar had placed a bet that some of the assets that were included in the CDO would fail and State Street failed to inform the investors who bought the CDO about this predicted mess. Thus, the investors failed to make an informed investment decision as they were unaware of the conflict of interest between Magnetar and other Carina investors.

State Street allegedly harmed the investors by leaving them with a loss of nearly $450 million when Carina failed. However, at this moment, State Street is neither admitting nor denying the findings of the Massachusetts regulators or the conclusions regarding information contained in the offering documents for the CDO.

Massachusetts state regulators have been trying to find out how the banks structured and sold a large number of debt products, prior to the financial crisis in 2008. Last month, Massachusetts regulators stated that they were investigating whether Bank of America Corporation ( BAC) had knowingly inflated the value of assets in two loan portfolios that were sold to the investors in the form of collateralized loan obligations. These loan portfolios led to nearly $150 million of losses to the investors.

Conclusion

We believe that by penalizing State Street, Massachusetts regulators have shown that financial institutions are liable for fines if they do not disclose correct information to the investors. Moreover, the inquiries and fines will lead to proper disclosures of the loan values and other debts by the banks and other financial institutions, which they sell to the investors.

Currently, State Street retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

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BANK OF AMER CP (BAC): Free Stock Analysis Report
 
DEUTSCHE BK AG (DB): Free Stock Analysis Report
 
KB HOME (KBH): Free Stock Analysis Report
 
STATE ST CORP (STT): Free Stock Analysis Report
 
TEXAS CAP BCSHS (TCBI): Free Stock Analysis Report
 
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