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All Eyes Watching Gogo IPO This Week: In-Flight Internet, Entertainment, Communications

Jon C. Ogg — Mon, 17 Jun 2013 16:31:18 +0000

The initial public offering for Gogo Inc. (NASDAQ: GOGO) should price for trading late this week. We have been waiting for this one for some time because Nasdaq showed that its initial public offering (IPO) was first filed back in late 2011. The reason we will watch this closely is because the company offers in-flight Internet connectivity and entertainment.

Terms of the IPO are for 11 million shares in a price range of $15 to $17 per share. Joint book-runners are Morgan Stanley, J.P. Morgan and UBS Investment Bank. Co-managers in the offering are Allen & Company, Evercore Partners and William Blair. At the middle of the price range, Gogo would have a market cap of close to $1.4 billion.

Gogo’s North American airline partners include Delta Air Lines Inc. (NYSE: DAL), American Airlines, U.S. Airways Group Inc. (NYSE: LCC) and Alaska Air Group Inc. (NYSE: ALK). The company represents that as of April 30, 2013 it had 1,908 commercial aircrafts online, which was shown to represent about 81% of internet-enabled North American commercial aircraft. Gogo also said that it has signed contracts with airline partners to install Gogo on 390 additional aircraft operated primarily in North America and it expects to complete roughly 140 of those installations by the end of 2013. Gogo sells in-flight internet connectivity and other voice and data communications products and services under the Gogo Biz and Aircell brands.

For the three-month period ended March 31, 2013 revenue increased 30.4% to $70.8 million from $54.3 million in the same quarter of 2012. Its net loss increased from $3.5 million to $14.5 million. The company’s revenue increased 46% from $160.2 million in 2011 to $233.5 million in 2012.

Filed under: Investing Tagged: ALK, DAL, GOGO, LCC

Deutsche Bank Says Buy Airlines Now

Lee Jackson — Thu, 30 May 2013 12:05:36 +0000

Investors with a long memory know that the airlines can be a risky place to put capital. The airline graveyard is littered with iconic names like Pan-Am, TWA, Eastern and Northwest, just to name a few. Everything from stubborn unions to the cost of jet fuel, to bad management and overexpansion, can be cited for many of the failures. Consolidation has taken hold in the airline industry and a slew of new fees and charges has helped the major remaining airlines get back to profitability.

With the summer travel season getting its official kick off last weekend for the Memorial Day holiday, the airline analyst team at Deutsche Bank A.G. (NYSE: DB) has released a new report highlighting passenger revenue per available seat mile. The numbers for the major carriers look solid for May, and that could bode very well for this summer.

Deutsche Bank has six solid airline stocks to buy now.

Alaska Air Group Inc. (NYSE: ALK) has been on a tremendous run since last fall. The company reported an 8.5% increase in its revenue passenger miles in April. The Deutsche Bank target for this top regional carrier is $70. The Thomson/First Call estimate is right in line at $70.

Allegiant Travel Co. (NASDAQ: ALGT) is a top stock to buy and has been profitable for 41 consecutive quarters. The company provides scheduled air transportation on limited frequency nonstop flights between small city markets and leisure destinations. Deutsche Bank has a $110 target, but the consensus price objective is $105.

Delta Air Lines Inc. (NYSE: DAL) just completed an expensive refurbishment of the old Pan-Am terminal at JFK in New York to help lure the high-end traveler. Deutsche Bank has a $20 target and the consensus is higher at $23. Investors receive a 1.30% dividend.

Southwest Airlines Co. (NYSE: LUV) stock has seen a consistent downtrend extending back to the early 2000s. The stock has made an explosive move this year that has taken it to the top end of its multiyear downtrend. Deutsche Bank has a $17 price target for this one-time market favorite. The consensus target is at $15.50. Shareholders are paid a 1.10% dividend.

United Continental Holdings Inc. (NYSE: UAL) has struggled since the merger and has had consistently low rating from customers. Hedge fund guru David Tepper, the founder of the high-return Appaloosa Management, likes the stock, which makes up almost 6% of his portfolio. Deutsche Bank has a $40 price target. The consensus is at $35.

US Airways Group Inc. (NYSE: LCC) is in the process of merging with the iconic American Airlines, which is still in bankruptcy. Timely acquisitions have built the company into an industry leader. The Deutsche Bank price target and the consensus target are both at $21. US Airways trades at an extremely low 4.5 times earnings.

Commodity costs are always the number one concern for the airlines. Investors have to be wary of instability or geopolitical issues that can either raise costs or keep customers from traveling. With fewer players in the game, the airlines have been able to avoid fare wars and tack on those pesky fees we all cannot stand. For investors, that adds up to a winning combination for the top stocks.

Filed under: Transportation Tagged: ALGT, ALK, DAL, DB, LCC, LUV, UAL

J.D. Power Rates Worst Airline Customer Satisfaction, U.S. Airways at Bottom

Douglas A. McIntyre — Wed, 15 May 2013 20:18:41 +0000

J.D. Power & Associates 2013 released its North America Airline Satisfaction Study. U.S. Airways Group Inc. (NYSE: LCC) was at the bottom of the list. United, of United Continental Holdings Inc. (NYSE: UAL) was second worst, barely edging out American Airlines in the third lowest spot among the worst traditional carriers. US Air may find its problem compounded when it mergers with American. The complexity and complications which accompany airline mergers nearly always damage customers service.

Among low-budget carriers, the bottom based on customer satisfaction was AirTran Airways followed closely by Frontier Air.

Power reported:

Alaska Airlines (NYSE: ALK) ranks highest in the traditional carrier segment for a sixth consecutive year, with an index score of 717. Alaska Airlines, which improves by 39 points from 2012 — the largest improvement among all carriers ranked in the study — performs particularly well in six of the seven factors: cost & fees; boarding/deplaning/baggage; aircraft; flight crew; check-in; and reservation.

Delta Air Lines moves up one rank position to second with a score of 682, improving by 23 points from 2012, with significant gains across all seven factors. Alaska Airlines and Delta Air Lines each improve significantly and perform well among traditional carriers in flight crew. Ranking third, Air Canada declines by six points to 671.

And

JetBlue Airways (NASDAQ: JBLU) ranks highest among low-cost carriers for an eighth consecutive year, with a score of 787. This also marks the ninth consecutive year JetBlue has ranked highest in the study. JetBlue, which improves by 11 index points on a year-over-year basis, performs particularly well in in-flight services and aircraft. Southwest Airlines (NYSE: LUV), which improves in all of the factors except cost & fees, ranks second at 770, which remains on par with 2012.

There has never been any solid evidence that customer satisfaction ratings actually affect the flying habits of travelers. However, that may be because as the number of carriers shrinks, so do the options to select alternatives.

Filed under: Aerospace & Defense Tagged: ALK, DAL, LCC, LUV, UAL

Southwest Airlines Chases Delta, Raising Its Dividend and Stock Buyback Game

Jon C. Ogg — Wed, 15 May 2013 15:30:12 +0000

Southwest Airlines Co. (NYSE: LUV) is living up to what we expected last week. After Delta Air Lines Inc. (NYSE: DAL) jumped the gun with a dividend declaration and new stock buyback plan, Southwest is making sure that its shareholders are being kept current in the dividend and stock buyback game.

Southwest Airlines announced Wednesday morning that its board of directors has quadrupled its quarterly dividend payment to $0.04 per share from $0.01 per share. The increase is for shareholders of record at the close of business on June 5, 2013, and will be paid on June 26, 2013.

Another boost is coming from the buyback plan. The existing $1 billion share repurchase program is being expanded to $1.5 billion. On top of that, an initial $250 million in its common stock will be repurchased under an accelerated stock repurchase program.

The new dividend will amount to a yield of 1.1%, based on the $13.98 close on Tuesday. Shares currently are trading higher by almost 3% at $14.39. That $1.5 billion share buyback compares to a market cap of $10.41.

As we have said before, United Continental Holdings Inc. (NYSE: UAL) is the main dividend sinner in the sector. The airline is considered the healthiest legacy carrier now that United and Continental have amalgamated into one company, and its market cap is $11.6 billion now that shares have rallied a whopping 70% in the past six months.

Filed under: Transportation Tagged: DAL, LUV, UAL

Media Digest: Reuters, WSJ, NYT, FT, Bloomerg

Douglas A. McIntyre — Thu, 09 May 2013 10:22:14 +0000

China’s inflation rises more than expected in April, although factory prices drop. (Reuters)

High revenue at Groupon Inc. (NASDAQ: GRPN) sends shares up by double digits. (Reuters)

Tesla Motors Inc.’s (NASDAQ: TSLA) first-quarter numbers are better than expected. (Reuters)

Pegatron, an Apple Inc. (NASDAQ: AAPL) supplier, boosts its workforce by 40% for the current quarter. (Reuters)

Smartphone sales are critical to the recovery of Sony Corp. (NYSE: SNE). (Reuters)

Sony’s profit is based on one-time sales of real estate and other assets. (WSJ)

Yields on junk bonds drop to near all-time lows. (WSJ)

McDonald’s Corp. (NYSE: MCD) and Wendy’s Co. (NASDAQ: WEN) begin a price war. (WSJ)

Coca-Cola Co. (NYSE: KO) launches more low-calorie drinks. (WSJ)

Activision Blizzard Inc. (NASDAQ: ATVI) says sales of World of Warcraft have slowed, which raises investor concerns. (WSJ)

Delta Air Lines Inc. (NYSE: DAL) announces a dividend and share buybacks — unusual in the struggling airline industry. (WSJ)

Costs to produce the Samsung Galaxy 4 will be helped by falling component prices. (WSJ)

J.P. Morgan Chase & Co. (NYSE: JPM) looks for directors with more risk management experience. (WSJ)

Groups opposed to the Keystone XL pipeline say President Obama must address other environmental problems if he approves its building. (NYT)

Vegetable prices cause much of China’s inflation in the past month. (FT)

Microsoft Corp. (NASDAQ: MSFT) names its first female chief financial officer. (Bloomberg)

Filed under: Investing Tagged: AAPL, ATVI, DAL, GRPN, JPM, KO, MCD, MSFT, SNE, TSLA, WEN

Will All Airlines Follow Delta on Dividends and Stock Buybacks

Jon C. Ogg — Wed, 08 May 2013 19:30:33 +0000

It was not that long ago that we were calling on major DJIA companies to lift their dividends in a CNBC interview. One sector we called on to begin dividend payments was the airline sector. While we assumed that United Continental Holdings Inc. (NYSE: UAL) would be the first to begin paying dividends, Delta Air Lines Inc. (NYSE: DAL) has jumped into the game of returning capital to shareholders.

Delta announced on Wednesday that it plans to create $5 billion in value for shareholders. In that plan, $1 billion will be returned to shareholders over the next three years and the airline declared a $0.06 per share common dividend as a result. Delta will also spend up to $500 million to repurchase its common stock.

Together, the dividend and buyback programs will return more than $1 billion of capital to shareholders over the next three years. The dividend yield is approximately 1.3% if you take the 3.3% gain to $18.68 on Wednesday.

Currently, Southwest Airlines Co. (NYSE: LUV) is the only airline that pays a dividend. Its yield is very small at 0.3%, but this may pressure Southwest to seek higher payouts as well.

Delta shares are up 3.3% at $18.68 and the stock hit a new multiyear high of $18.84 today. The $0.24 annualized payout compares to $2.64 in earnings per share expected from Thomson Reuters for earnings in 2013.

Filed under: Transportation Tagged: DAL, LUV, UAL

24/7 Wall St. Closing Bell — April 23, 2013: Flash Crash Has No Impact on Rising Stocks

Paul Ausick — Tue, 23 Apr 2013 20:07:07 +0000

U.S. equity markets opened higher this morning despite low flash PMI readings from the eurozone. Germany’s manufacturing PMI reading was especially notable, falling to 47.9 from 49, and the country’s services PMI fell as well (more coverage here). In Asia, China’s flash manufacturing PMI fell from 51.60 last month to 50.50, which was worse than expected (more coverage here). In the U.S., the flash PMI reading fell from 54.6 to 52, which is still positive, but barely (more coverage here). U.S. house prices rose in February (more coverage here) and new home sales were also up after a drop in January (more coverage here). An afternoon “flash crash” followed a false report of an explosion at the White House caused by a hacker attack on the AP Twitter feed.

The U.S. dollar index is trading up 0.43% today, now at 83.032. The GSCI commodity index is flat at 609.10. WTI crude oil closed flat today, at $89.18 a barrel on the June futures contract. Brent crude trades down 0.1% at $100.26 a barrel. Natural gas is down 0.8% today at about $4.23 per million BTUs. Gold settled down 0.9% today at $1,408.80 an ounce.

The unofficial closing bells put the DJIA up more than 152 points to 14,719.53 (1.05%), the NASDAQ rose nearly 36 points (1.11%) to 3,269.33, and the S&P 500 rose 1.04% or more than 16 points to 1,578.78.

There were a several analyst upgrades and downgrades today, including Bankrate Inc. (NYSE: RATE) cut to ‘sell’ at Goldman Sachs; Yum! Brands Inc. (NYSE: YUM) cut to ‘underperform’ at BofA/Merrill Lynch; Caterpillar Inc. (NYSE: CAT) raised to ‘overweight’ with a price target of $100 at J.P. Morgan; Morgan Stanley (NYSE: MS) raised to ‘buy’ with a price target of $25 at SunTrust Robinson Humphreys; and General Electric Co. (NYSE: GE) reiterated as ‘buy’ with a price target of $25 at Argus.

Earnings reports since markets closed last night resulted in some price moves today, including these as of the last half hour of trading: Netflix Inc. (NASDAQ: NFLX) is up 24.9% at $217.81 after posting a new 52-week high of $219.38 earlier today (more coverage here); Gilead Sciences Inc. (NASDAQ: GILD) is down 1.5% at $53.22; Stillwater Mining Co. (NYSE: SWC) is up 1.2% at $10.99; Texas Instruments Inc. (NASDAQ: TXN) is up 2.5% at $35.67 after posting a new 52-week high of $36.23 earlier today (more coverage here); AK Steel Holding Corp. (NYSE: AKS) is up 0.5% at $2.94; Coach Inc. (NYSE: COH) is up 10.5% at $55.88; Gannett Co. Inc. (NYSE: GCI) is down 5.2% at $19.94; Lockheed Martin Corp. (NYSE: LMT) is up 1.5% at $97.24 after posting a new 52-week high of $99.49 earlier today (more coverage here); and RadioShack Corp. (NYSE: RSH) is up 2.1% at $3.21 (more coverage here).

Before markets open tomorrow morning we are scheduled to hear earnings reports from Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), Broadcom Corp. (NASDAQ: BRCM), Edwards Lifesciences Corp. (NYSE: EW), Juniper Networks Inc. (NYSE: JNPR), Yum! Brands Inc. (NYSE: YUM), Barrick Gold Corp. (NYSE: ABX), Corning Inc. (NYSE: GLW), Ford Motor Co. (NYSE: F), Procter & Gamble Co. (NYSE: PG), and Sprint Nextel Corp. (NYSE: S).

Some standouts among heavily traded stocks today include:

Delta Air Lines (NYSE: DAL) is up 9.8% at $16.62. The air lines reported decent earnings today, but is forecasting lower fuel costs going forward. More coverage here.

American International Group Inc. (NYSE: AIG) is up 5.2% at $40.60. The insurer won a lawsuit dismissal in California today.

Arch Coal Inc. (NYSE: ACI) is down 5.9% at $4.60. The coal miner’s quarterly report came in as poorly as expected and its outlook is now particularly strong. More coverage here.

Stay tuned for Wednesday. We have noted the following events on the schedule (all times Eastern):

7:00 a.m. – Mortgage Bankers Association purchase applications
8:30 a.m. – Durable goods orders
10:30 a.m. – EIA weekly petroleum status report
1:00 p.m. – 5-year note auction

Filed under: Investing Tagged: AAPL, ABX, ACI, AIG, AKS, BRCM, CAT, COH, DAL, EW, F, GCI, GE, GILD, GLW, JNPR, LMT, MS, PG, RATE, RSH, S, SWC, T, TXN, VMW, YUM

Delta Air Lines Earnings Cannot Overcome Soft Outlook

Paul Ausick — Tue, 23 Apr 2013 13:05:11 +0000

Delta Air Lines Inc. (NYSE: DAL) reported first-quarter 2013 results before markets opened this morning. The airline reported adjusted diluted quarterly earnings per share (EPS) of $0.10 on revenues of $8.5 billion. In the same period a year ago, Delta reported an EPS loss of $0.05 on revenues of $8.4 billion. First-quarter results also compare to the consensus estimates for EPS of $0.06 on revenues of $8.51 billion.

On a GAAP basis, the company reported quarterly EPS of $0.01, compared with $0.15 in the first quarter of 2012. Special items totaled $78 million, including a $24 million mark-to-market gain on fuel hedges and a $102 million charge for other items. In the first quarter of 2012, the company reported one-time items totaling $163 million.

Delta’s unique fuel supply scheme, in which it owns and operates its own refinery, cost the company $22 million in the first quarter, caused by disruption to the refinery’s operation due to Hurricane Sandy and a short-term problem with the gasoline production unit.

The company’s CEO said:

We are taking actions to mitigate the decline in close-in demand we saw in the last part of March, and we expect the impact of the sequester, combined with a softening of leisure demand, to result in a 2 – 3 percent decline in April’s unit revenues. However, a key benefit from a consolidated industry is that we now see a much stronger correlation between revenue and fuel; so while we are seeing some revenue softness, we are also benefitting from lower fuel costs, allowing us to continue our path of margin expansion even in a sluggish economic environment.

At the end of last year’s fourth quarter, Delta forecast fuel costs for the first quarter in the range of $3.15 to $3.20 per gallon. Actual fuel cost came in at $3.24 per gallon, and if the company is going to benefit from its refinery, it is going to have to get its refining operations straightened out.

Capital spending of $650 million in the first quarter was also higher than the previous estimate of $500 million to $600 million. The airline’s seat capacity dropped 2.5% in the quarter, in line with the estimate for a 2% to 4% decline.

For the second quarter of 2013, Delta expects to post an operating margin of 9% to 11% on fuel prices of $2.95 to $3.00 per gallon. Seat capacity is expected to be flat to up 1%, compared with the second quarter of 2012.

Shares are down 2.3% at $14.80 in premarket trading this morning in a 52-week range of $8.42 to $17.25. Prior to today’s release Thomson/Reuters had a consensus price target of around $18.80 on the company’s shares.

Filed under: Aerospace & Defense Tagged: DAL

24/7 Wall St. Closing Bell — April 22, 2013: Markets Close Higher After Rocky Start

Paul Ausick — Mon, 22 Apr 2013 20:03:55 +0000

U.S. equity markets opened higher this morning, but struggled to stay in positive territory for most of the morning. There was little economic data released today. In Asia, Hong Kong’s consumer price index rose to 3.6%. The weakening yen boosted the Nikkei again today and a press report that non-performing loans in China now total 20.7% of all loans weighed on Shanghai. In the U.S., the report on existing home sales was weaker than expected (more coverage here), and the Chicago Fed’s national activity index turned negative in March (more coverage here).

The U.S. dollar index is trading down 0.08% today, now at 82.650. The GSCI commodity index is up 0.3% at 607.50. WTI crude oil closed up 0.9% today, at $88.76 a barrel, closing the May futures contract. Brent crude trades up 0.8% at $100.45 a barrel. Natural gas is down 3.2% today at about $4.27 per million BTUs. Gold settled up 1.8% today at $1,421.20 an ounce.

The unofficial closing bells put the DJIA up about 20 points to 14,567.33 (0.14%), the NASDAQ rose more than 27 points (0.86%) to 3,233.55, and the S&P 500 rose 0.47% or more than 7 points to 1,562.50.

There were a several analyst upgrades and downgrades today, including Baker Hughes Inc. (NYSE: BHI) cut to ‘sell’ at Argus; Ericsson (NASDAQ: ERIC) cut to ‘sell’ at SocGen; Newmont Mining Co. (NYSE: NEM) cut to ‘sell’ at Deutsche Bank; Netflix Inc. (NASDAQ: NFLX) raised to ‘neutral’ at B. Riley (our Netflix earnings preview is here); and AbbVie Inc. (NYSE: ABBV) raised to ‘overweight’ at Morgan Stanley.

Earnings reports since markets closed last Friday resulted in some price moves today, including these as of the last half hour of trading: Caterpillar Inc. (NYSE: CAT) is up 2.9% at $82.78 (more coverage here); Check Point Software Technologies Inc. (NASDAQ: CHKP) is up 0.7% at $45.62; Halliburton Co. (NYSE: HAL) is up 5.5% at $39.26 (more coverage here); Hasbro Inc. (NASDAQ: HAS) is up 3.5% at $46.60 after posting a new 52-week high of $48.46 earlier today; and NVR Corp. (NYSE: NVR) is down 8.7% at $919.04.

Before markets open tomorrow morning we are scheduled to hear earnings reports from Netflix Inc., Gilead Sciences Inc. (NASDAQ: GILD), Stillwater Mining Co. (NYSE: SWC), Texas Instruments Inc. (NASDAQ: TXN), AK Steel Holding Corp. (NYSE: AKS), Arch Coal Inc. (NYSE: ACI), Coach Inc. (NYSE: COH), Delta Air Lines Inc. (NYSE: DAL), Gannett Co. Inc. (NYSE: GCI), Lockheed Martin Corp. (NYSE: LMT), RadioShack Corp. (NYSE: RSH), and VMware Inc. (NYSE: VMW).

Some standouts among heavily traded stocks today include:

Power-One Inc. (NASDAQ: PWER) is up 56.4% at $6.32. The maker of solar inverters is being acquired by ABB (NYSE: ABB) for about $1 billion. More coverage here.

Microsoft Corp. (NASDAQ: MSFT) is up 4% at $30.94. The software giant is up on news that an activist investor has poured some $2 billion into the company’s stock. More coverage here.

General Electric Co. (NYSE: GE) is down 2.1% at $21.30. The conglomerate’s stock was downgraded by analysts at J.P. Morgan today. More coverage here.

Stay tuned for Tuesday. We have noted the following events on the schedule (all times Eastern):

8:58 a.m. – Flash PMI manufacturing index
9:00 a.m. – FHFA house price index
10:00 a.m. – New home sales
10:00 a.m. – Richmond Fed manufacturing index
11:30 a.m. – 4-week bill auction
1:00 p.m. – 2-year note auction

Filed under: Investing Tagged: ABB, ABBV, ACI, AKS, BHI, CAT, CHKP, COH, DAL, ERIC, GCI, GE, GILD, HAL, HAS, LMT, MSFT, NEM, NFLX, NVR, PWER, RSH, SWC, TXN, VMW

Beware Another American Airlines Reservations Breakdown

Douglas A. McIntyre — Wed, 17 Apr 2013 10:33:03 +0000

The breakdown of the reservations system of AMR, parent of American Airlines, will not be the last for the company. Carrier mergers are notorious for the customer disruption they cause. As American marries U.S. Airways Group Inc. (NYSE: LCC), the likelihood of more reservations catastrophes grows.

The most recent two huge mergers of U.S. carriers offer evidence that the recent American reservations debacle and other customer trouble will happen again.

The New York Times reported in mid-2011 that the Delta Air Lines Inc. (NYSE: DAL) buyout of Northwest created a customer disaster:

The airline had the worst record among large carriers for on-time arrivals last year, and it accounted for a third of all customer complaints, the worst of any airline, for categories like service and lost bags, according to the Transportation Department.

And Independent Traveler.com wrote about airline reservations systems:

The problems associated with merging the reservations systems of Delta and Northwest, and to an even greater degree United and Continental, were covered extensively in the travel press.

The United merger with Continental that created United Continental Holdings Inc. (NYSE: UAL) also showed how mergers can cause reservations system issues. The New York Times reported in its assessment of the recent American Air reservation system collapse:

Such nationwide breakdowns are rare but not unprecedented, particularly when airlines merge. United Airlines experienced similar problems last year when its reservation systems failed repeatedly as it merged them with those of Continental Airlines.

If a bankrupt AMR cannot maintain its own reservation system properly, it is easy to imagine how the same system could trigger similar problems, or even worse.

There are several things fliers can virtually bank on. Mergers cause a number of predictable events. Among them are layoffs, higher ticket prices, lower customer service standards and broken frequent flier systems. But at the top of the list is the most critical aspect of travel, as far as the passenger is concerned. Can he book a seat, get on the plane on which it is booked and actually take off to his destination?

Filed under: Aerospace & Defense Tagged: DAL, LCC