The Zacks Analyst Blog Highlights: Southwest Airlines, Boeing, Delta Air Lines, JetBlue Airways and Goldman Sachs Group
For Immediate Release
Chicago, IL – May 17, 2013 – 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 Southwest Airlines (LUV), The Boeing Company (BA), Delta Air Lines Inc. (DAL), JetBlue Airways Corporation (JBLU) and The Goldman Sachs Group, Inc. (GS).
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Here are highlights from Thursday’s Analyst Blog:
Southwest Hikes Dividend, Revises Delivery
In an attempt to enhance shareholder value, Southwest Airlines (LUV) announced a 400% hike in quarterly dividend to 4 cents per share from a penny per share, marking the second increase since 2012. On an annualized basis, the total amount of dividend payout is expected to reach over $100 million. The dividend will be paid on Jun 26, to stockholders of record on Jun 5.
Additionally, the company also raised its stock repurchase plan to $1.5 billion from the existing program of $1 billion. As of May 14, Southwest has bought back about 82 million shares, worth $725 million, under its previous share repurchase authorization. Considering the increase in the authorization, the company now has the authority to buyback an additional $775 million of common stock, of which $250 million will be repurchased through an accelerated-repurchase program.
Alongside these announcements, Southwest unveiled an aircraft purchase order restructuring initiative that is expected to induce cost savings in the coming five years. The company switched five orders for The Boeing Company’s (BA) 737-700 into 737-800s and abandoned a set of five purchase orders of Boeing Next Generation jets each in 2014 and 2015.
The Dallas-based airline is looking forward to possess the new Boeing 737 MAX-7 after 2019 through 2021. Designed with the latest CFM International LEAP-1B engines, the Boeing MAX jets are expected to reduce fuel consumption and lower CO2 emissions by over 12%.
Between 2014 and 2015, Southwest will buy 10 used Boeing 737-700s from the low-cost Canadian carrier WestJet for an undisclosed price. These jets will be used in place of the older Boeing 737-300s and 737-500s that are set to retire in the next few years, and until the company gets the advanced MAX planes. Additionally, the company has postponed the purchase of 41 next-generation 737s from 2014 to 2018 and aims to buy 737 MAX jets beyond 2024.
The amended delivery schedule will work in favor of the company by trimming its capital expenditure on aircraft orders through 2018 by more than $500 million. The company has also deferred about $2 billion of potential capital spending on jet deliveries after 2018.
With this revised delivery structure, Southwest’s annual average capital commitment for aircraft will be approximately $1 billion to $1.2 billion, through 2024. For 2013 and 2014, the figure is likely to be around $900 million and $1.2 billion, respectively.
Southwest – which operates along with the likes of Delta Air Lines Inc. (DAL) and JetBlue Airways Corporation (JBLU) – currently holds a Zacks Rank #2 (Buy).
Goldman’s Legal Woes Ebb
The Goldman Sachs Group, Inc. (GS) won the dismissal of a lawsuit filed by ACA Financial Guaranty related to Abacus – a collateralized debt obligation (:CDO). The plaintiffs had accused the company of colluding with Paulson & Co. to obtain guaranteed payments from bond insurers on risky investments.
A N.Y. state appeals court in Manhattan dismissed the case against Goldman, in the process, overturning the ruling of a lower-court.
In 2011, ACA Financial filed a $120 million lawsuit against the company and later in January, added Paulson & Co along with its hedge fund unit – Paulson Credit Opportunities Master II Ltd as the accused. The modified lawsuit claimed that Goldman and Paulson tricked ACA Financial into believing that Paulson was investing in the CDO. However, Paulson had taken a short position on it.
The Abacus CDO has long plagued Goldman and embroiled the banking major in a legal mess. Among the 4 transactions involved in the lawsuit, the first one was the Securities and Exchange Commission’s (:SEC) charges against the company, accusing it of misleading investors by misrepresenting facts in its mortgage-backed securities of over $1 billion. The SEC's complaint accused the investment bank of creating a CDO called Abacus 2007-AC1, which constituted mortgage-backed securities.
Goldman was also charged by the SEC in the U.S. of misrepresenting facts and selling bad quality subprime investments to its customers in 2006, without disclosing the risk factors and the vital role of Paulson & Co., a prime hedge fund, in the portfolio selection process. Consequently, the company reached a settlement of $550 million in Jul 2010 with the SEC.
The other 3 transactions included the Hudson CDO in 2006, the Anderson CDO in 2007 and Timberwolf I hybrid CDO-squared transaction in 2007. In all these cases, Goldman was accused of incurring billions by selling poor quality assets to clients, while short-selling those securities.
In Jul 2012, a federal judge in N.Y. revoked Goldman’s plea of dismissing the lawsuit filed on it, accusing it of selling risky debts through misleading statements. The U.S. District Judge, Paul Crotty, ordered the plaintiffs to proceed with their claims against the bank.
The dismissal of the lawsuit bodes well for Goldman as it will reinstate investors’ confidence in the company. Over the years, the bank has been troubled by mounting litigation problems over fraudulent conduct, which has been a persistent overhang on its expenses.
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