The Zacks Analyst Blog Highlights: Allied World Assurance Company Holdings, US Airways Group, Southwest Airlines, JetBlue Airways and Delta Air Lines

Nov 27, 2013, 09:55 ET from Zacks Investment Research, Inc.

CHICAGO, Nov. 27, 2013 /PRNewswire/ -- 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 Allied World Assurance Company Holdings, AG (NYSE: AWH-Free Report), US Airways Group Inc. (NYSE: LCC-Free Report), Southwest Airlines Co. (NYSE: LUV-Free Report), JetBlue Airways Corp. (Nasdaq: JBLU-Free Report) and Delta Air Lines Inc. (NYSE: DAL-Free Report).


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

Here are highlights from Tuesday's Analyst Blog:

Allied World Upped to Strong Buy

On Nov 26, Zacks Investment Research upgraded Allied World Assurance Company Holdings, AG (NYSE: AWH-Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Allied World has witnessed rising earnings estimates on the back of a strong third-quarter 2013. Moreover, this property-casualty insurer has delivered positive earnings surprises in the last 4 quarters with an average beat of 32.8%. The long-term expected earnings growth rate for this stock is 12.9%    

Allied World reported its third-quarter 2013 operating net income of $2.93 per share on Oct 23. The results surpassed the Zacks Consensus Estimate by 37.6% and year ago earnings by 35.6%.

Earnings were primarily aided by growth across Allied World's niche book of business which in turn was driven by a solid underwriting performance and an attractive rate environment.

Allied World's lower loss ratio drove a year-over-year improvement of 390 basis points (bps) in combined ratio to 84.2% in the reported quarter.

Allied World exited the third quarter with cash and cash equivalents of $1.2 billion that surged 39.9% from the 2012-end level.

With respect to share buyback, Allied World spent $40.6 million to repurchase 0.43 million shares in the third quarter.

The Zacks Consensus Estimate for 2013 increased 6.8% to $10.37 per share over the last 30 days as 4 of 6 estimates were raised. For 2014, same numbers of estimates moved north lifting the Zacks Consensus Estimate by 1.9% to $7.61 per share over the same time frame.

AMR Pursues Legal Consent for Merger

American Airlines, a subsidiary of AMR Corporation is seeking approval from a U.S. bankruptcy court for its legal settlement with Department of Justice (DOJ) that will allow it to merge with US Airways Group Inc. (NYSE: LCC-Free Report). The carrier has argued that none of its creditors have opposed the merger, which will create the largest airline company in the world.

Notably, Fort Worth, Texas-based AMR Corp. filed for bankruptcy in Nov 2011, citing unmanageable labor issues that drastically increased its expenses. In Feb 2013, the board of directors of the aforesaid airlines gave the nod to merge, thus providing a means to come out of chapter 11 bankruptcies and pay back its creditors.

The merger received opposition from a small group of 40 travel agents and business flyers though, who fear that the amalgamation will increase fares and reduce competition. The group asked for a restraining order to halt the merger, the ruling on which is expected by this Wednesday.

Recently, both American Airlines and U.S. Airways cleared all competition-related litigation raised by the DOJ along with attorneys general of six states and the District of Columbia in Aug 2013. As part of the clearance, the airlines will have to give up 52 take-off and landing slots at Washington's Regan National Airport (DCA) and 17 pairs at La Guardia airport in New York (LGA). Further, the carriers have to divest two gates and related facilities at each of the Boston, Chicago, Dallas, Los Angeles and Miami airports.

The DOJ has claimed that opening up of slots to carriers will likely induce more competition within the industry. The DOJ which was earlier favoring the low cost carriers likeSouthwest Airlines Co. (NYSE: LUV-Free Report) and JetBlue Airways Corp. (Nasdaq: JBLU-Free Report), now have to include legacy carriers like Delta Air Lines Inc. (NYSE: DAL-Free Report) in the process.

Post-merger, the combined unit will likely have more than 6,500 daily flights to 336 destinations across 56 countries generating annual revenues of roughly $40 billion.

Bankruptcy court clearance will bring some respite for AMR shareholders, who can now expect to get back their investments. Nevertheless, AMR still needs a single operating license from the Federal Aviation Administrator before it could fly as a merged unit.

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

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