The Zacks Analyst Blog Highlights: Hewlett Packard, GOL Linhas Aereas, Delta Airlines, United Continental Holdings and American Airlines Group

Feb 21, 2014, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Feb. 21, 2014 /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 Hewlett Packard (NYSE: HPQ-Free Report), GOL Linhas Aereas (NYSE: GOL-Free Report), Delta Airlines Inc. (NYSE: DAL-Free Report), United Continental Holdings Inc. (NYSE: UAL-Free Report) and American Airlines Group Inc. (Nasdaq: AAL-Free Report).


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

Here are highlights from Thursday's Analyst Blog:

H-P Posts Strong Q1 Earnings

Hewlett Packard (NYSE: HPQ-Free Report), reported first quarter 2014 earnings and revenues today, posting an EPS of $0.90, beating the Zacks Consensus Estimate of $0.85.  On the Revenue front, HPQ beat the Zacks Consensus Estimate of $27.19 billion, by posting Revenues of $28.15 billion.  

As the company is in year two of CEO Meg Whitman's five year plan, the street was anticipating the news regarding the companies Free Cash Flow situation, the company-wide restructuring effort, PC sales, and margins.  First, Free Cash Flow, has been scrutinized due to dividend payments, and the overall cost of the restructuring plan.  In the previous quarter, HPQ had a FCF of $2.0 billion, and is now at $2.4 billion.  A marked improvement from the previous quarter.  Secondly, the restructuring effort by management has been well received and has obviously helped both the top and bottom lines.  

The company was able to trim costs, and still produce positive revenues (net cash is currently at $1.7 billion).  Third, PC sales, it appears as though PC sales have finally bottomed out, and that there is a potential for growth in the coming years for the company. Moreover, the PC segment saw a rise of 4% in total revenues.  Finally, but most importantly, Margins; one of the strongest areas of margin growth for the company was in the Printer segment, which saw margins up 16.8%.  Overall, management stated that margins were positive and moving in the correct direction.  

In other news, HPQ is currently in talks to settle a lawsuit regarding the Autonomy write-down.  This $8.8 billion write-down after the acquisition of Autonomy, due to Autonomy's controversial hardware sales practices.  The plaintiffs are stating that HPQ management was aware of the practices before a whistleblower identified the problem.  This settlement could have a negative impact on FCF, and their margins though 2014 as well.  

GOL Strikes Deal with Air France-KLM

Low-cost Brazilian carrier GOL Linhas Aereas (NYSE: GOL-Free Report) has announced an exclusive strategic partnership with European giant Air France-KLM SA aimed at expanding their operations between Brazil and Europe. Shareholders reacted positively to the news as the stock gained 5.5% in the Wednesday aftermarket trade on NYSE.

Per the agreement, Air France-KLM will invest $100 million of which $52 million will be in GOL's preference share representing a 1.5% stake. The remaining $48 million will be invested as part of commercial agreements and bonus based on cost savings. Both the companies await regulatory approval for the deal.

The alliance includes increased code share, joint sales activities and enhanced offerings through their frequent flyer program, which will allow GOL to extend its service in Europe, while Air France-KLM will benefit by increasing its presence in Brazil. The agreement will allow both the companies to increase their service to 318 destinations across 115 countries.

GOL has a code sharing agreement with Delta Airlines Inc. (NYSE: DAL-Free Report), whereby the two carriers will maximize the connecting routes in the Brazil–United States passage. The current code share agreement allows Delta to access 23 destinations in Brazil while GOL customers can access 5 markets that Delta currently serves.

Brazil will host the 2014 World Cup and 2016 Summer Olympics, two of the biggest global sporting events. This year the country is expected to get around 600,000 international visitors in addition to 3 million domestic fans during the event, presenting a big opportunity for passenger carriers like GOL.

Thus the partnership will strengthen GOL's position in Europe – one of the most popular destinations for Brazil. Passengers from Europe are only expected to increase during the world cup, and drive growth. However, persistent weakness in the Brazilian economy, a depreciating Real and surging operating costs could create headwinds for the company going forward.  

GOL currently carries a Zacks Rank #3 (Hold). Better-ranked stocks within this sector include United Continental Holdings Inc. (NYSE: UAL-Free Report) and American Airlines Group Inc. (Nasdaq: AAL-Free Report). Both carry a Zacks Rank #1 (Strong Buy).

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

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