Caterpillar, Inc. (NYSE: CAT) Raised to Outperform as Bull of the Day at Zacks.
Halliburton Co. (NYSE: HAL) Reiterated Buy but lowered target to $54 at Argus.
Harmony Gold Mining Co. Ltd. (NYSE: HMY) Raised to Buy at UBS.
Home Depot Inc. (NYSE: HD) Reiterated Buy and raised price target to $51 at Argus.
Interline Brands, Inc. (NYSE: IBI) named as Value stock of the day at Zacks.
KLA-Tencor Corporation (NASDAQ: KLAC) Raised to Buy at Citigroup.
Michael Kors Holdings Limited (NYSE: KORS) Started as Overweight at Morgan Stanley; Started as Outperform at Baird; Started as Buy at Goldman Sachs.
Netflix, Inc. (NASDAQ: NFLX) Maintained Outperform with $100 target at Credit Suisse.
NII Holdings, Inc. (NASDAQ: NIHD) Cut to Underperform as Bear of the Day at Zacks.
Novellus Systems, Inc. (NASDAQ: NVLS) Raised to Buy at Citigroup.
Pan American Silver Corp. (NASDAQ: PAAS) maintained Outperform but lowered estimates at Credit Suisse.
Texas Instruments Inc. (NYSE: TXN) Reiterated Outperform and raised target to $40 at Credit Suisse; Cut to Hold at Kaufman Bros.
Union Pacific Corp. (NYSE: UNP) Reiterated Buy and raised target to $130 at Argus.
Zumiez Inc. (NASDAQ: ZUMZ) Cut to Neutral at Credit Suisse.

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JON C. OGG

Delta (NYSE: DAL) was the industry leader with baggage fees of $733 million in the first nine months of this year, followed by American Air (NYSE: AMR) at $431 million, Continental at $258 million and United at $239 million.

Southwest Air (NYSE: LUV) which does not charge for baggage, brought in only $22,000 in fees

Customers do not like fees, but unless they can fly Southwest they cannot avoid them.

The airline industry finally caught on to the fact that it had lost money for decades for a number of reasons which include high fuel and labor costs. It never occurred to the industry that the way to offset costs and boost profits was to charge passengers for nearly everything they do. Meals are no longer free on most flights. There is a charge for movies and other entertainment. Airlines have begun to charge for the better economy seats. The cost of drinks, both alcoholic and non-alcoholic, has risen. Carriers have begun to  add new service like WiFi and the charge for these also adds to revenue.

Passengers look back at the days when almost everything that airlines did for them was free. It made flying pleasant, but it also helped push a lot of carriers either out of business or into Chapter 11.

Douglas A. McIntyre

AirlineFinancials.com

• First 3^rd quarter since 2007 that all nine airlines will report profits.

• First time since 2007 all nine airlines will have two consecutive profitable quarters.

• Delta, Continental, US Airways, Southwest, Jet Blue, and Alaska will report record high 3^rd quarter profits.

• Southwest, JetBlue, Alaska, and Air Tran will report record high 3^rd quarter revenues.

• The estimated 7.2% average 3^rd quarter profit margin would be the highest margin for at least the last 15 years.

• Over the last decade, 2007 was the only other year the airline industry had a 3^rd quarter profit.

• Since 2000, the nine airlines noted in this report accumulated over $2.4 billion in losses for 2001, 2002, 2005, and 2008.

• After accounting for the $2.4 billion profit for the 3^rd quarter 2010, the nine airlines noted here have accumulated $8.7 billion in Q3 losses since 2000.

Northwest has merged with Delta (NYSE: DAL) and United with Continental (NYSE: DAL). Word came yesterday that Southwest Air (NYSE: LUV) would buy AirTran (NYSE: AAI). The markets traded up other regional firms including Alaska Air (NYSE: ALK) and JetBlue (NASDAQ: JBLU).

A number of airline analysts believe that American Air (NYSE: AMR), which was once the largest carrier in the US,  may need to find M&A targets quickly to bolster its routes. AMR’s stock is down 15% this year.

The airline mergers hurt three groups badly. The first are airline employees, some of whom are almost always fired in carrier marriages. Otherwise, how would the carriers cut costs? Unions generally fight these layoffs, but ultimately some people lose their jobs.

Customers rarely do well in a consolidation. The merger of two sets of ground personnel and computer reservation systems cause glitches. Airlines use mergers to raise fares on redundant routes. Ticket prices move higher as fewer carriers fly from city to city.

The last losers in airline mergers are the large aircraft builders, Boeing (NYSE: BA) and Airbus. Larger airlines have more bargaining power because of the size of their fleets. Combining redundant routes usually means planes are taken off-line, which creates a large inventory of used, but in most cases, perfectly serviceable aircraft.

Boeing has finally come close to the launch of its Dreamliner and has ramped up production of its 737 and 747 planes. These actions may come at a time when industry consolidation, both in the US and abroad, will bring the demand for new aircraft down.

Douglas A. McIntyre

The turnaround in the economy and fuel prices are critical to the estimates. “The improved outlook for 2010 is being driven by a combination of factors. On the revenue side increasing demand and disciplined capacity management are leading to sharply stronger yields pushing revenues higher. At the same time, costs remain relatively stable.”

Giovanni Bisignani, IATA’s Director General and CEO said that the improvement is not much of a salve for years of hard times. “The $8.9 billion profit that we are projecting will start to recoup the nearly $50 billion lost over the previous decade.”

The “cost” of the gains is substantial, and not sustainable. Airline lay-offs have increased due to mergers of large carriers line United (NASDAQ: UAUA) and Continental (NYSE: CAL) and Northwest and Delta (NYSE: DAL). These mergers may create the world’s largest airlines, but they do so in a way that damages the economy. Consolidation also almost always hurts customer service.

The airlines do not have much to add in the way of new fees for passengers or to cuts in service. Most airlines do not serve meals on short flights, but they do charge for luggage. Electronic check-in may allow the carriers to cut desk staff, but those cuts are one-time. New generations of air craft may drop fuel consumption, but that is one of the few ongoing benefits that airlines have found.

The single thing that is nearly certain about airlines is that they will eventually engage in irrational pricing to gain passengers. Price wars cut profits, but the trend has gone on for decades.

Profits may have returned to the industry, but in a way that is not sustainable.

Douglas A. McIntyre

USA Today looked at data from 2004 to the present which included studies by JDPower, Zagat, and from several universities.  The review by the newspaper found that “There’s no correlation between what passengers pay for flights and their satisfaction with an airline. Newer planes and a concentration on service often dictate customer satisfaction.”

The meta-data study indicates that old fleets and legacy employees hurt consumer perception of carriers such as American (NYSE: AMR), Delta (NYSE: DAL), and Continental. This perception could be worsened by that Delta merger with Northwest and the upcoming combination of Continental (NYSE: CAL) and United (NASDAQ: UAUA). Marriages between airlines often cause labor unrest, a cutback in numbers of flights, and mergers of reservation systems which can cause delays in bookings and incompatible fares.

What the survey does not show is that the traveler who wants to go from place to place by air is trapped. Discount carriers including Southwest (NYSE LUV) and JetBlue only fly to very limited parts of the nation. Fliers who want access to most of the airports around the country have no other choice than to use the large airlines.

And, that may be the secret to good service–it is easier to provide on route systems which are small and need only a modest number of aircraft. Carriers that are medium-sized and cover modest amounts of geography may be better able to treat customers because they have more control over the number of people they serve and the number of airports that they fly to.

Anheuser-Busch InBev (NYSE: BUD) is going to be one to watch after Barron’s touted it this weekend.  “Big Gains Brewing at Anheuser-Busch InBev by CHRISTOPHER C. WILLIAMS Wall Street’s doubts about the beer behemoth are fast disappearing as the Belgian-based brewer cuts costs and crafts plans to boost growth in the U.S. and globally.

Apple Inc. (NASDAQ: AAPL) has a corporate event om September 1 with new iPod updates and potentially updates on the AppleTV initiative expected.

Aruba Networks, Inc. (NASDAQ: ARUN) was listed as the #1 chart in the IBD 100 over the weekend.  At $18.39, the 52-week trading range is $7.44 to $18.69.

Continental Airlines and UAL Corp. (NASDAQ: UAUA) managed to secure DOJ approval despite the dominance that this merger will give the company over its competitors and over its customers.  Shares are likely to trade up marginally for Continental and UAL, although despite this merger being bad for America it was always expected to receive approval.

Genzyme Corporation (NASDAQ: GENZ) is indicated higher after Sanofi-Aventis confirmed a $69.00 bid to the company.  The problem is that Genzyme is not necessarily playing along.  Management seems stuck on the old $80+ high at a time that the company is still recovering from its virus and manufacturing issues.  If history is an example, we’d expect Genzyme to remain aloof.

SanDisk Corporation (NASDAQ: SNDK) is trading as though a worse warnings is coming from the company than what Intel forecast on Friday.  SanDisk shares fell 4.4% to $34.19 with more than double volume as it traded over 29 million shares.  This one we pegged for InvestorPlace.com over a week ago for a 200%+ option gain that we recommended then rolling down to a lower strike with a portion of the profits.  That may still happen.

3PAR, Inc. (NYSE: PAR) closed at $32.46 on Friday, $2.46 above the current H-P bid of $30.00 per share.  The premium is here as there is a bidding war and as investors feel that Dell will raise its offer as it has been doing so far.  3PAR was deemed an expensive buyout at $18 and then at $24, and now it is a praised deal.

United States Natural Gas (NYSE: UNG) saw an unbelievable amount of put activity in the Sept-2010 and OCT-2010 $6.00 PUTS…. more than its open interest of 44,000+ and 53,000+ contracts respectively.  Total volume in the $6.00 PUTS was over 61,000 contracts and over 75,000 respectively.  The ETF closed at $6.24, down over 3% on weak natural gas demand while oil rose steadily on Friday.  It looks like the bet is on that nat-gas is heading lower.

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JON C. OGG

Reuters:   BP plc (NYSE: BP) began the “static kill” of its well in the Gulf.

Reuters:   Japan is worried because the yen is at a 15-year high.

Reuters:   European banks are profiting as bad loans drop.

Reuters:   Barnes & Noble (NYSE: BKS) is up for sale.

Reuters:   Oil fell as US stocks of crude rose.

Reuters:   Research In Motion (NASDAQ: RIMM) released a new phone to compete with the Apple Inc. (NASDAQ: AAPL) iPhone.

Reuters:   Motorola Inc. (NYSE: MOT) and Verizon Communications (NYSE: VZ) will build a tablet PC to rival the Apple iPad. The unit will use Google Inc.’s (NASDAQ: GOOG) Android OSReuters:   Sharp will launch a 3D handset.

Reuters:   Continental Air (NYSE: CAL) and UAL (NASDAQ: UAUA) will release more information on their merger talks.

WSJ:   The sales of electronics are hurting purchases of clothes and consumer appliances says the Commerce Department

WSJ:   The Federal Reserve is foreclosing on certain properties from its Bear Stearns asset portfolio.

WSJ:   Saudi Arabia will shut done some RIM BlackBerry services in a few days.

WSJ:   US car sales were up 5% last month but Toyota sales fell.

WSJ:   Three studies say than banks will not have to cut lending because of new financial regulations.

WSJ:   The FTC will announce a settlement with Intel Corporation (NASDAQ: INTC) over charges it worked to hurt competition.

WSJ:   Baidu Inc (NASDAQ: BIDU) is working to improve its growth.

WSJ:   Republican Senators released a list of 100 items that have failed as part of the stimulus package.

WSJ:   BP plc sold some Colombian assets.

WSJ:   Procter & Gamble (NYSE: PG) earnings were hurt by product promotions.

WSJ:   Dollar Thrifty as Avis Inc (NYSE: CAR) to improve its bid.

WSJ:   Microsoft Corporation (NASDAQ: MSFT) is using data from its China labs to improve a Chinese-English translation tool.

WSJ:   China’s CIC may buy part of Harvard’s real estate investments.

NYT:   About three-quarters of the Gulf oil spill is already dissipating.

NYT:   A National League of Cities survey shows more cities are cutting pay instead of laying of f workers.

NYT;   Germany is experiencing a broad recovery.

FT:   More China banks will trade gold.

Bloomberg:   Facebook says its largest advertisers are increasing their investments by 1000%

Douglas A. McIntyre

The $328 first-quarter 2010 average fares were down 8.3%  from the all-time high, not inflation-adjusted, of $358 in the third quarter of 2008.

Airline revenue and profits may be directly related to fares, but they are a reasonable indicator of carrier health. Air fares excludes lease, personnel, jet fuel, and debt service costs.

The stock market must see some correlation between fares and carrier viability. Continental Airlines (NYSE: CAL) trades at close to $26. The price was at only $7.28 in mid-July 2008 when crude prices rose above $140.

Before that spike in the cost of oil and before the recession drove down passenger traffic and fares, Continental traded for $28 during the holiday flying season in 2007. The movement in the stock prices of AMR (NYSE: AMR) and Delta (NYSE: DAL) are about the same.

Douglas A. McIntyre