Read the ten most hated companies in America

Research about companies comes in two sets. One is public research about consumer satisfaction, customer care, pricing of products and services, and brand impressions. Wall St. research takes into account another set of factors, which include present earnings, profit forecasts, product development and quality, and brand valuations.

Some of the companies on this list are widely despised because of the businesses that they are in. In an economic environment where resources are stretched, an airline or retail operation that has millions of customers is likely to make a lot of enemies. Similarly, banks and other corporations with a large number of retail outlets are at a disadvantage compared with businesses with few customers. Some of the corporations on this list also have had to fire significant numbers of employees due to the recession. Downsizing causes poor morale, increases the workload of the remaining staff and affects customer satisfaction when service is poorer.

We examined each company based on several criteria. We considered total return to shareholders in comparison to the broader market and other companies in the same sector during the last year. We reviewed financial analyst opinions on those companies that are public. We analyzed data from a broad array of sources, including Consumer Reports, JD Power, the MSN/Zogby Poll, ForeSee and the University of Michigan American Customer Satisfaction Index. We also considered negative press based on 24/7 Wall St.’s analysis of media coverage and the Flame Index, which uses a proprietary algorithm to review more than 12,000 websites and ranks companies based on the frequency of negative words. Finally, we considered the views of taxpayers, Congress and the White House — where applicable.

Several companies that should have been on the list based on performance and public perception during the financial crisis did not make it. For example, it would be easy to argue that mortgage giants Fannie Mae and Freddie Mac should be here. The bankruptcy and maintenance of the two by the federal government will cost taxpayers between $224 billion and $360 billion, according to the Federal Housing Finance Agency (FHFA). But, Fannie Mae and Freddie Mac are no longer stand-alone companies in any normal sense. Their shares have been delisted. Each is in effect a ward of the U.S. government with no ability to control its own fate through the actions of management or public shareholders.

The U.S. Postal Service could also be a candidate for the list. It has cost taxpayers billions of dollars, and it lost $5.1 billion in its last fiscal year alone. However, the Postmaster General and his staff have little or no control over the eventual fate of the USPS. Congress decides how and to what extent it will be funded. That means Congress essentially controls how many workers and offices will exist, and even, based on funding, how often the mail will be delivered.

It is worth noting that some of the companies on the list may have done very poorly by some measures, and well by others. A few of the most hated companies have had good stock performances. Others may have satisfied customers. All of this was taken into account when the decisions for the final list were made.

The following are 24/7 Wall St.’s 10 Most Hated Companies for 2011, in no particular order.

Congress reaches a tentative deal to keep the government open. (Reuters)

Bill Gross’s PIMCO Total Return Fund continues to do poorly. (Reuters)

The maker of Angry Birds may have its IPO in Hong Kong. (Reuters)

Deutsche Bank (NYSE: DB) will begin the sale of its asset management business. (Reuters)

Research In Motion (NASDAQ: RIMM) delays its QNX system until 2012, an unexpected development. (Reuters)

Apple (NASDAQ: AAPL) struggles to gain market share in China. (Reuters)

Salesforce.com (NYSE: CRM) enters the HR software industry. (Reuters)

Sony (NYSE: SNE) will launch its Vita device. (WSJ)

Battelle Memorial Institute reports that R&D spending should increase next year. (WSJ)

The International Monetary Fund’s Lagarde says all major nations must help Europe. (WSJ)

United, Delta (NYSE: DAL)  and US Airways (NYSE: LCC) begin to challenge Southwest (NYSE: LUV) at the low end of the price market. (WSJ)

The CEO of the New York Times Company (NYSE: NYT) departs. (WSJ)

Investors in Sino-Forest ask the CEO to leave. (WSJ)

Facebook will release new software to make it easier for advertisers to use the social network. (WSJ)

MF Global’s Jon Corzine says he knew about fund transfers to Europe. (WSJ)

Japanese regulators again attack Citigroup (NYSE: C) over its mutual fund sales. (WSJ)

Property prices in Asia fall quickly. (WSJ)

Morgan Stanley (NYSE: MS) cuts 1,600 jobs. (WSJ)

Some retailers will have “Super Saturday” before Christmas. (NYT)

Kinder Morgan (NYSE: KMI) to bet its $21 billion buyout of El Paso Corp. (NYSE: EP) will give it a chance to enter the booming natural gas market. (NYT)

Russia may invest $20 billion in an EU bailout, with the money moving through the IMF. (NYT)

The co-CEOs of RIM will cut their salaries to $1. (FT)

Fitch cuts the ratings of Bank of America (NYSE: BAC), Goldman Sachs (NYSE: GS) and Barclays (NYSE: BCS). (Bloomberg)

PSA Peugeot Citroen , Fiat SpA and General Motors (NYSE: GM) lead a drop in European car sales. (Bloomberg)

Douglas A. McIntyre

With American Airlines on the sidelines, we’ve looked at the stocks of several other US carriers in a search for some hidden value: Delta Air Lines Inc. (NYSE: DAL), United Continental Holdings Inc. (NYSE: UAL), Southwest Airlines Co. (NYSE: LUV), US Airways Group Inc. (NYSE: LCC), JetBlue Airways Corp. (NYSE: LCC), Alaska Air Group Inc. (NYSE: ALK), Hawaiian Holdings Inc. (NASDAQ: HA), and Spirit Airlines Inc. (NASDAQ: SAVE).

Delta Air Lines has a median target price of $18.00 and is trading at $8.39 around noon today. The implied gain here is about 115%. Delta’s share price is about -1.5% lower than it was on October 21st, so the implied gain is growing because the share price is falling. The target price is unchanged since October.

US Airways has a median target price of $10.00 and is trading today at $5.36, about -7.6% lower than the share price in late October. The implied gain is about 86.6%, and the target price is unchanged since October.

United Airlines has a median target price of $32.50 and is trading today at $19.94, yielding a potential upside of nearly 63%. The stock’s target price rose by $0.50 in the past six weeks, but the share price has fallen by about -1.4% in the same period.

Every one of the nine stocks we looked at has an implied gain of greater than 20%, proving once again that numbers often don’t tell the whole story. The only stock with a chance of offering investors some value is Alaska Air. But the chance is a very slim one.

Alaska Air’s median target price was raised from $80.00 to $83.00, and the share price has increased by about 5% since late October. It’s the only one of these nine to perform that combined feat. The stock’s potential upside is 22% and its forward P/E is 7.39. The company does not pay a dividend.

Alaska has ordered 15 new 737s from Boeing Co. (NYSE: BA) and deliveries are scheduled to begin in 2012. Thirteen of the new planes will be 737-900ERs, which carry a list price of $89.6 million each. That’s a total of about $1.2 billion, which is roughly equal to both the company’s long-term debt and to its available cash.

The company does not indicate how it will finance the purchase of these planes, but a recent report in the Financial Times indicates that European banks, the main lenders to global airlines, have cut back lending for commercial aircraft purchases. That means the airlines will have to issue debt or perhaps resort to leasing new planes.

The impact on aircraft makers like Boeing is likely to be greater than the impact on airlines, but what’s reasonably certain is that the cost of capital for aircraft is going to rise. For that reason, if for no other, investing in any airline stock now is a speculative play rather than a value play.

Paul Ausick

The International Air Transport Association (IATA) released this new forecast this morning, and that’s not even the worst news according to the group’s CEO:

The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion—the largest since the 2008 financial crisis.

There is some slightly positive news for US carriers like Delta Air Lines Inc. (NYSE: DAL), United Continental Holdings Inc. (NYSE: UAL), Southwest Airlines Co. (NYSE: LUV), and US Airways Group, Inc. (NYSE: LCC). North American carriers are expected to generate about $1.7 billion in profits during 2012 primarily due to less capacity growth which will help keep profits up.

But that isn’t enough to keep the global industry on a positive track:

Even if government intervention averts a banking crisis it is unlikely that Europe will avoid a brief recession. Business and consumer confidence has already fallen too far. Global GDP growth forecasts for 2012 have been revised downwards to 2.1%. Historically the airline industry has seen profit turn into loss whenever global GDP growth falls below 2%. This is driving the downgrade in the 2012 outlook.

The IATA expects European-based airlines to lose $600 million next year, mainly due to economic weakness in their home countries and higher passenger taxes. Asia-Pacific carriers, including China, are expected to post a profit of $2.1 billion, down from an estimated $3.3 billion profit this year.

The 2011 profit forecasts for Middle Eastern and Latin American fell by $400 million each, to $400 million and $200 million, respectively. African carriers are still expected to break even in 2011. The 2012 forecast for these three regions have all been lowered: Middle Eastern carriers are now expected to post profits of $300 million, down from $700 million; Latin American carriers are expected to post 2012 profits of $100 million, down from $400 million; and African carriers are still expected to lose $100 million.

A bit of hope does exist for fuel prices to be no higher in 2012 than they are this year, and even for prices to fall if the Eurozone debt crisis doesn’t get fixed. Of course, if that fix doesn’t happen the airlines have bigger problems than the price of fuel.

Paul Ausick

The bankruptcy of AMR will allow the carrier to negotiate with pilots as the Chapter 11 filing gives it new leverage. The courts may make it harder on all American unions to work for higher wages or to strike as a means to get them. Pilots, mechanics and flight crews could find that their wages actually fall as a judge decides that labor costs are so extreme that AMR cannot present a plan to emerge from bankruptcy. Poor labor relations often mean poor customer service, which will make it harder for American to recreate itself as a viable business.

United Continental is at the other end of the range of success and failure in the industry. According to the Wall Street Journal, “By granting a single operating certificate covering both carriers, FAA officials, in effect, blessed United Continental’s plan to meld the two airlines.” The expense of operating two carriers will disappear. The cost eliminations of the marriage will be completely realized, which should take the margins of the combined company higher.

What neither carrier can escape is high fuel prices and a recession that has kept customers off planes. Airlines have tried to offset these problems with higher fees for fliers and reduced services. As long as all carriers do the same, none has a service advantage. But United Continental has created the efficiency of one reservation system, one airport support system and one set of routes. The extra fees from customers will only enhance that advantage.

AMR, on the other hand, has to face the stigma of the bad PR that goes with a bankruptcy filing. The additional fees it charges customers may not be readily accepted as skittish travelers look for alternatives to traveling on a crippled carrier. American will go through years to build back its reputation. It may shed some operations costs in restructuring, but it cannot match those of the merger of two huge carriers.

United Continental has begun to see the best results of a single healthy carrier that has been able to cut operations costs through standard business practices. American is in the earliest stages of trying to get similar advantages through the legal system. It is easier to use good business practices as a means to success than it is by a Chapter 11 filing.

Douglas A. McIntyre

China’s PMI contracts for the first time in three years. (Reuters)

The former CEO of Olympus tries to get his job back after the company was rocked by scandal. (Reuters)

A Reuters poll shows that U.S. and UK institutions have sharply cut EU debt. (Reuters)

A massive strike of UK teachers and public employees, based on resistance to government expense cuts, rocks the country. (Reuters)

Meg Whitman, the new CEO of Hewlett-Packard (NYSE: HPQ), will rely on increases in software revenue to revive the company. (Reuters)

AT&T (NYSE: T) and Deutsche Telekom may create a joint venture between AT&T Wireless and T-Mobile as a way to get around government objections to a buyout. (Reuters)

New insider trading charges may be brought against managers at Neuberger Berman, Diamond Back and Level. (WSJ)

Pilots at American Airlines hire Lazard to help them in negotiations. (WSJ)

S&P cuts its rating of HP by two notches. (WSJ)

Tepco says its Fukushima Daiichi nuclear complex was closer to a major disaster than previously thought. (WSJ)

Statistics agency Eurostat  says unemployment across the Euroblock rose to 16.3 million. (WSJ)

United Continental (NYSE: UAL) receives government approval to further integrate its operations. (WSJ)

Web entrepreneurs are concerned that a sales tax on Amazon.com (NASDAQ: AMZN) will spread to their businesses. (WSJ)

Walt Disney (NYSE: DIS) sharply increases its dividend. (WSJ)

Intuit (NASDAQ: INTU) to offer free smartphone tax advice. (WSJ)

Yahoo!’s board continues to favor the sale of a minority interest. (NYT)

Time Warner (NYSE: TWX) picks the head of Digitas to run Time Inc., a sign of a move away from print. (NYT)

Zynga’s IPO to be valued at $10 billion. (NYT)

Spain and France will try to raise money in a high-interest sovereign paper environment. (Bloomberg)

Douglas A. McIntyre

It may seem odd, but the AMR bankruptcy is likely a boom for the likes of United Continental Holdings, Inc. (NYSE: UAL) and US Airways Group, Inc. (NYSE: LCC), which are up 6% and 10% respectively.  Southwest Airlines Co. (NYSE: LUV) is up 0nly 1 penny at $7.88 and Delta Air Lines Inc. (NYSE: DAL) is up 3.6% at $7.70.  Even JetBlue Airways Corporation (NASDAQ: JBLU) is catching a 5.7% pop higher.

All those bankruptcy rumors now turned out to be true.  AMR has noted that it has $4.1 billion cash in the bank and also that it will honor all tickets and reservations for American and American Eagle Flights.

The market is telling you that shareholders will be left with nothing here.  AMR’s stock is down 85% at $0.2311 and the new 52-week trading range is $0.80 to $8.89.

Gerard Arpey has also announced his decision to retire as Chairman and Chief Executive Officer.  I wonder what his parachute has considering that this wipes out shareholders.

This move will allow other airlines to have a stronger negotiating position, it will also allow for potentially higher ticket prices, and more nickel-and-dime fees.  If this wasn’t true you wouldn’t have the peers up as much as 10%.

Early this morning in the pre-market AMR’s stock was down about 60%.  For it to slide further is a sing of doom heading the way of AMR.  A bankruptcy stock down 60% indicated at least some chance of there being assets left over.  A drop of almost 86% is a sign of a death sentence.

JON C. OGG

Another airline that is also cheap and oversold is United Continental Holdings, Inc. (NYSE: UAL), but it is expected to only have breakeven earnings in the March quarter while Southwest is expected to be profitable in the current December and the coming March quarters. Companies like US Airways Group, Inc. (NYSE: LCC) and Delta Air Lines Inc. (NYSE: DAL) are both expected to have an operating loss in at least one of the next two quarterly reports.  The rumor mill also has many investors worried of a potential bankruptcy at AMR Corporation (NYSE: AMR).  JetBlue Airways Corporation (NASDAQ: JBLU) is attractive on valuations as well, but its problems seem to keep working against it even if its Northeast-dominance leaves it more subject to adverse weather conditions than most rivals. This leaves Southwest as the best of class among the large air carriers even if these other stocks also look oversold on their charts.
 
Southwest remains the most passenger-friendly large air carrier in the sky.  The company is also still digesting the acquisition of Airtran and it is now much more subject to the price of jet fuel that it was from 2006 to 2008.  Shares sold off from $12 to $8 during the summer sell-off and shares went well under $8 during the peak selling in late-September and early October.  After a recover, shares slid from $8.50 just about two weeks ago to end up at $7.73 most recently. 

The airline still sports a relatively young fleet and it still has perhaps the best safety record despite some less than headline-friendly in the last few years.  The company pays only a 0.2% dividend yield, but that is actually one of the few dividends in the airline sector.  With what may be more predictable earnings than peers, we view Southwest as the one airline that wants to be dividend-friendly in the years ahead.

We would consider the current $12.21 consensus analyst target from Thomson Reuters now artificially high even if the 52-week trading range is $7.15 to $13.77 versus a $7.73 price today.  In fact, that target price is high enough that we are even considering that analysts will lower their price targets ahead.  The stock is now trading under its stated book value and it trades at only about 1.1-times tangible book value.  And if it meets Thomson Reuters estimates, then the stock trades at 19-times 2011 and under 10-times 2012 expected earnings. Southwest should recover considerably unless the market tanks or unless an unforseen event occurs. 

We would note, Southwest has what is close to a net-zero exposure to Europe.  The only thing not in its favor is that hedging gasoline prices like it did in years past has been far less prevalent.  The company also has a better labor situation compared to other airlines. 

This was one of seven oversold picks poised for a comeback which was offered recently to our readers who sign up for our free daily newsletter service.  Each morning’s free newsletter is sent by email and includes the top news headlines, shows the top 15 or so analyst upgrades and downgrades, covers activist investor and insider trading, and offer key trading alerts for investors. Sign up in the box below.

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For all its struggles with new airplanes, Boeing Co. (NYSE: BA) put up some pretty big numbers for the third quarter. The company’s EPS of $1.46, sharply above the consensus estimate of $1.12. Revenue came in at $17.73 billion, lower than the consensus estimate of $17.83 billion. Boeing delivered 127 commercial aircraft in the third quarter, up sequentially from 118 and year-over-year from 124.

The company’s first new 787 Dreamliner was delivered and the company’s first new 747-8 cargo plane was delivered to Luxembourg’s Cargolux after an initial spat over pricing. Airbus maker European Aeronautic Defense and Space Co. (OTC: EADSY) releases earnings next month. US airlines Southwest Airlines (NYSE: LUV), and Alaska Air (NYSE: ALK), and Delta Air Lines Inc. (NYSE: DAL) released earnings earlier this week and United Continental Holdings Inc. (NYSE: UAL), US Airways Inc. (NYSE: LCC), will release earnings tomorrow. JetBlue Corp. (NASDAQ: JBLU) missed the consensus EPS estimate this morning, though revenues were in-line with expectations.

Boeing raised its full-year EPS guidance from $3.90-4.10 to $4.30-$4.40 and narrowed its revenue estimate to $68-$70 billion. The company lowered delivery estimates on the Dreamliner to 15-20 and to 25-30 for the 747-8 freighter, while raising margin estimates from 8%-8.5% to 9%-9.5%.

The company’s defense group posted an operating profit jump of 20% year-over-year, with its military aircraft group boosting profit by 27%.

The upbeat results and the improved guidance could be hard to meet given the overall outlook for air carriers for the rest of this year. The weak global economy, especially in the developed countries, is already having an impact on capacity. Several of the large foreign carriers have retrieved mothballed aircraft and put them back into service, threatening to reduce traffic even more.

Boeing could be staring into the teeth of a swift and significant downturn in orders if passenger traffic declines further. The company’s backlog reached $332 billion at quarter end, up from $323 billion sequentially. The company said that it has taken a net $61 billion in new orders in the first nine months of the year.

For all the good news in this report, one unusual item that stands out is cash flow. Boeing’s free cash flow for the quarter was just $69 million on operating cash flow of $449 million. A year ago the company’s operational cash flow totaled $1.86 billion and free cash flow totaled $1.6 billion. For the year-to-date, free cash flow is negative, at -$50 million compared with a positive free cash flow of $1.1 billion for the first nine months of 2010. Boeing attributes the decline to continued investment in its development programs and a $500 million payment to its discretionary pension fund.

Boeing’s shares are trading up more than 5% shortly after opening this morning, at $67.11, in a 52-week range of $56.01-$80.65. The lightly traded Guggenheim Airline ETF (NYSE: FAA) closed at $27.89 yesterday and has seen no trades yet this morning.

Paul Ausick