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The Zacks Analyst Blog Highlights: Southwest Airlines, Delta Airlines, American Airlines Group, United Continental Holdings and AGCO

Zacks Equity Research

For Immediate Release
Chicago, IL – July 03, 2014 – 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 Southwest Airlines Co. (LUV-Free Report), Delta Airlines Inc. (DAL-Free Report), American Airlines Group Inc. (AAL-Free Report), United Continental Holdings Inc. (UAL-Free Report) and AGCO Corporation (AGCO-Free 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:

Southwest Debuts in International Skies

After operating for several decades within the U.S. domestic market, Southwest Airlines Co. (LUV-Free Report) is finally flying into international territory, with flights to the Caribbean. The share price gained altitude on the news as the stock closed 3.24% higher on Tuesday trade on Nasdaq.

As announced in Jan 2014, Southwest Airlines inaugurated services from Atlanta, Baltimore and Orlando to Oranjestad, Aruba and Montego Bay, Jamaica. Another flight will fly from the Baltimore-Washington D.C. area to Nassau and Paradise Island, thus extending the carrier’s international service to the Bahamas.

Dallas-based Southwest Airlines announced that after the initial round of flights, it will expand its international service to Cancun and Los Cabos in Mexico starting next month. Flights to Mexico City and Punta Cana, Dominican Republic will thereafter be added from Nov 2.

Southwest Airlines already operates flights to Mexico and Dominican Republic through its wholly owned subsidiary, AirTran. The airline plans to integrate AirTran with itself by the end of this year.

Southwest Airlines has come a long way since it started operations four decades ago. Having established itself as a top carrier with an expanded national footprint, the company now plans to flag off international flights from nine U.S. cities by the end of this year.

However, the international service will currently have only a modest contribution in Southwest Airlines’ overall performance. In this regard, the carrier will naturally lag way behind its larger rivals like Delta Airlines Inc. (DAL-Free Report), American Airlines Group Inc. (AAL-Free Report) and United Continental Holdings Inc. (UAL-Free Report), which boast strong international operations.

Moreover, Southwest Airlines will face considerable completion from JetBlue, Delta Airlines and American Airlines, who already fly to the Caribbean. However, we believe the carrier should gain from its relatively low fares as compared to its traditional rivals.

Though an apparent international expansion, Southwest Airlines is technically taking over the operations of its subsidiary AirTran, which flies to the Caribbean. However, Southwest Airlines’ international service is here to stay for good as the carrier plans to add 50 international routes going forward.

Southwest Airlines currently carries a Zacks Rank #1 (Strong Buy).

AGCO Upped to Strong Buy on Inorganic Growth

On Jul 2, 2014, Zacks Investment Research upgraded the manufacturer of agricultural equipment AGCO Corporation (AGCO-Free Report) to a Zacks Rank #1 (Strong Buy) based on potential acquisition benefits, a strong cash position and growth in GSI sales in 2014.

Why the Upgrade?

AGCO remains committed to its plan of strategic investments in production facilities and higher technology products. Based on this, the company has agreed to acquire Intersystems Holdings Inc on May 23. This will expand the company’s material handling capabilities.

The buyout will help AGCO to expand its grain handling and storage business in the fast growing off-farm segment. The acquisition is in sync with AGCO’s acquisition, expansion and modernization plans and matches perfectly with its GSI brand.

In the first quarter of 2014, GSI sales were up about 10% which aided North America segment sales to rise 3.7% year over year to $647.5 million in the quarter. However, AGCO’s total sales decreased 2.9% year over year to $2.33 billion in the quarter.

AGCO exited the quarter with cash and cash equivalents of $193.9 million as of Mar 31, 2014. AGCO expanded its share repurchase program to $500 million, which is likely to be completed by mid 2015.

At the earnings call, AGCO reiterated its full-year 2014 earnings per share outlook of approximately $6.00. Net sales guidance has also been maintained in the range of $10.8–$11.0 billion. Second-quarter 2014 earnings per share will be in the range of $1.65 to $1.70.

The company projected GSI sales to be up approximately 10% for full-year 2014 compared with 2013, with most of the growth occurring outside the U.S. In addition, global population growth and changing trends in diet are generating demand for additional grain storage and protein production capacity facilitating growth in the longer term.

These bullish factors led to an upward estimate revision. Over the last 60 days, the Zacks Consensus Estimate for 2014 increased 0.5% to $5.52 per share and for 2015, the same increased 3.8% to $5.24 per share.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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