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Ryanair Holdings, Halliburton, JPMorgan Chase, Citigroup and Wells Fargo highlighted as Zacks Bull and Bear of the Day

Buy or sell dice

Chicago, IL - September 29, 2015- Zacks Equity Research highlights Ryanair Holdings (RYAAY) as the Bull of the Day and Halliburton (HAL) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on JPMorgan Chase & Co. ( JPM ), Citigroup Inc. ( C ) and Wells Fargo & Company ( WFC ).

Here is a synopsis of all five stocks:

Bull of the Day :

I'm not going to lie to you, it's very hard to sit up here and choose a "Bull of the Day" when it seems like it's hitting the fan from every direction right now. First it was energy, then China, then biotech, now healthcare. There seems to be nowhere to hide in this market right now, other than under the desk. Well I'm a big guy and it's not too spacious down there so I propose an alternate solution; search for the strength.

The airline industry is in the top 9% of the 265 industries we rank with our Zacks Industry Rank. Among the Zacks Rank #1 (Strong Buy) stocks to choose from is our "Bull of the Day" Ryanair Holdings (RYAAY). Ryanair operates an ultra-low cost, scheduled airline serving short-haul, point-to-point routes between Ireland, the United Kingdom, Continental Europe and Morocco. The company's principle fleet consists of Boeing 737-800 aircraft.

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Over the last thirty days, three analysts have upped their earnings estimates for the current year and next year. The bullish attitude has pushed up the Zacks Consensus estimate to $4.77 from $3.85 for the current year and up from $4.34 to $5.41 for next year. Those upward revisions are a big reason for the Zacks Rank #1 (Strong Buy). This stock also happens to be blessed with a Zacks Momentum Style Score of "A" making it very attractive at these levels.

Bear of the Day :

When I'm looking for a stock to be my "Bear of the Day" I look for weak stocks in a weak industry. So you see it's easy for me to look at a Zacks Rank #5 (Strong Sell) in an industry that ranks in the bottom 18% of the 265 industries we rank with our Zacks Industry Rank, and find myself a bearish idea. But when that stock also happens to be in the energy business that's taken the biggest hit this year, I almost feel like I'm making it too obvious.

Falling crude prices have put pressure on companies across the energy sector. Today's "Bear of the Day," Halliburton (HAL), is one of the world's largest providers of products and services to the energy industry. The company serves the upstream oil and gas industry throughout the lifecycle of the reservoir. It's no wonder that business would be struggling as oil is becoming cheaper and cheaper as more is brought to market.

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You don't have to take my word for it. Recently, ten analysts have revised their earnings estimates to the downside for the current year, while eleven have done so for next year. Most of that bearish change took place between thirty and sixty days ago. But in the last week, another round of negative revisions have come through, dropping the Zacks Consensus Estimates even further. Currently, the consensus for the current year has gone from $1.68 to $1.60, while next year's number has fallen from $1.95 to $1.71.

Additional content:

Energy Lending Now a Major Burden for Banks?

The rippling effects of the plunge in oil prices over the past year continue to hit harder on the banking sector. Energy lending, which once aided the U.S. oil boom, now seems to give jitters to banks as they face continuous regulatory pressure to limit exposure in the sector.

Concern arises on the fact that amid the still low oil prices, credit quality of the loans made to the energy companies will continue to deteriorate, which may ultimately hit bank's profitability. This is because higher provisioning to cover the bad loans of the energy companies is likely to shrink the banks' overall earnings.

A report released by the Office of the Comptroller of the Currency (OCC) in June 2015, on Semiannual Risk Perspective , placed oil and gas lending on the top of its list of risks that demand awareness among bankers and examiners. It stated that, "The significant decline in oil prices in 2014 could put pressure on loan portfolios in the oil and gas production and services sector."

Regarding credit underwriting, the report highlighted, "where indicated, examiners will also assess banks' actions to assess, monitor, and manage both direct and indirect exposures to the oil and gas sector, given the recent decline in oil prices and the potential for a protracted period of low or volatile prices."

Banks extend loans to energy companies on the basis of the value of their oil and natural gas reserves. Owing to the acute drop in oil prices, which is currently trading below the key psychological level of $50-a-barrel, after hitting new 6-1/2 year low of $37.75 last month, the worth of several of those reserves dropped to around half compared to previous year.

Banks adjust the revolving credit lines, termed "redetermination," twice a year which is generally around April and October. Notably, the redeterminations of these reserve-based loans, which are expected to occur this fall are likely to hit the small and midcap exploration and production companies harder compared to the larger-cap companies because the smaller companies depend more on bank debt placing the energy reserves as collateral.

Banks, which have extended credit to troubled energy firms in order to avoid large amounts of defaults, are however tightening their finding pipeline to these companies. Amid regulatory pressure, banks have commenced their fall reviews on the collateral quality placed by the small and mid-sized firms.

The Concerns

Banks, which continue to embrace stricter rules and regulations post crisis, are currently in a rift with regulators with loan reviews in the energy portfolio.

Notably, the issues came into light after major U.S regulators - the OCC, the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Board, increased their scrutiny on the banks that lend to the energy sector, as a part of the Shared National Credit (SNC) review program that is currently underway.

Notably, earlier this month the regulators met with several energy bankers from companies including JPMorgan Chase & Co. ( JPM ), Citigroup Inc. ( C ) and Wells Fargo & Company ( WFC ). According to a recent report by the Wall Street Journal , the banks raised concern as regulators' spring review rated several reserve-based loans as more risky than the banks had contemplated.

In their standing, the banks have explained why reserve-based loans resemble lower-risk, asset-based loans. They also raised question about the OCC's consideration of an energy company's total debt when evaluating reserve-based loans, which are usually paid earlier than other debt in case there is a restructuring.

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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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RYANAIR HLDGS (RYAAY): Free Stock Analysis Report

HALLIBURTON CO (HAL): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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