For Immediate Release
Chicago, IL – June 11, 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 ConocoPhillips (COP), Phillips 66 (PSX), United Continental Holdings Inc. (UAL), Delta Air Lines Inc. (DAL) and Southwest Airlines Co. (LUV).
Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Friday’s Analyst Blog:
Conoco Lowered to Underperform
We are downgrading our recommendation on ConocoPhillips (COP) to Underperform from Neutral, on the back of disappointing first-quarter earnings. Financial leverage also deteriorated with a higher debt-to-total capital ratio and lower cash balance.
ConocoPhillips’ first quarter earnings and revenue came in below the Zacks Consensus Estimate. The earnings of the Exploration and Production segment fell year over year mainly on account of reduced volumes, higher taxes and lower natural gas prices. Additionally, a dip in refining margins during the quarter pulled down the Refining and Marketing segment profits.
In May 2012, ConocoPhillips completed the spin-off of its refining/sales business into a separate, independent and publicly traded company Phillips 66 (PSX). This has left ConocoPhillips with a less diversified business. As a result, the business risk profile of the reorganized ConocoPhillips is weaker than that of the pre-spin-off company.
Moreover, given the substantial investment required to augment upstream operations, any strategic change in the composition of ConocoPhillips’ assets will involve considerable capital expenditures, in addition to the planned outlay. This may be significantly burdensome for the company’s future cash flows and put pressure on its already strained balance sheet.
Having already divested $20.2 billion of non-strategic assets last year and $1.1 billion in the first quarter of 2012, and plans to offload $10 billion worth of properties this year, the company’s output is likely to be affected with production shrinking further.
Our bearish investment thesis on ConocoPhillips also takes into consideration ConocoPhillips’ sensitivity to changes in the crude oil price, as well as geopolitical risks associated with international operations and operational challenges. In fact, the pessimism around the stock is well reflected through its estimate revisions.
Currently, the Zacks Consensus Estimate for ConocoPhillips’ second-quarter 2012 earnings stands at $1.49 per share, down 38% year over year. Of the 8 estimates, 2 moved downward in the last 30 days, while no upward revision was witnessed. For 2012, the Zacks Consensus Estimate is pegged at $6.40 per share, down 27% year over year.
Given these concerns, we expect ConocoPhillips to perform below its peers and industry levels in the coming months. As such, we see little reason for investors to own the stock. Our long-term Underperform recommendation is supported by a Zacks #5 Rank (short-term Strong Sell rating).
United Upgraded on Solid Outlook
We recently upgraded our long-term recommendation on United Continental Holdings Inc. (UAL) from Underperform to Neutral based on future growth prospects. The largest U.S. airline retains the Zacks #3 (Hold) Rank for the short term (1–3 months).
We believe United has resolved to a certain extent the reservation glitches that had taken a toll on the demand for its services in the first quarter, ensuing in higher costs and revenue loss. Reservation glitches occurred in March due to the adoption of a single loyalty program, Mileage Plus, and the transition of the Continental website into the new United website.
The adoption of a single loyalty program has created a new growth opportunity for the company’s loyalty business. We believe this segment will be the highest margin-producing business in the long term as United capitalizes on all the benefits of strengthening and expanding networks, widening new memberships and launch of new products like MileagePlus Headliners and the Gift Card Exchange.
Though the company’s future growth prospects remain bright based on improving air travel demand, expanding product and services, fleet and network optimization, hedging strategy and the expected merger benefits from Continental Airlines, we believe 2012 will be a critical year owing to the successful integration of Continental Airlines, surging fuel prices, uncertain economic conditions and the threats of recession in Europe.
Additionally, United sees some inflationary pressure in salaries and wages of employees, which will increase the operating cost of the company in the near future. Further, ancillary business (product introductions and improvements) expenses as well as fleet rightsizing initiatives are expected to weigh on the near-term results.
On the liquidity front, United Continental, which gives strong competition to Delta Air Lines Inc. (DAL) and Southwest Airlines Co. (LUV), continues to have a healthy balance sheet. The company had $7.3 billion in cash and short-term investments, and $500 million in undrawn revolving credit facilities as of March 2012.
Moreover, the Zacks Consensus Estimate projects earnings per share of $3.99 for fiscal 2012, representing a substantial growth of 14.40% annually. The Zacks Consensus Estimate moved up by 20 cents in the last one month, suggesting positive analyst sentiments on the stock.
Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Follow us on Twitter: https://twitter.com/zacksresearch
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Zacks Investment Research
800-767-3771 ext. 9339
More From Zacks.com