The Zacks Analyst Blog Highlights:Southwest Airlines, Delta Airlines, United Continental Holdings, American Airlines Group and Airgas

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Feb 12, 2014, 09:30 ET

CHICAGO, Feb. 12, 2014 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 the Southwest Airlines Co. (NYSE:LUV-Free Report), Delta Airlines Inc. (NYSE:DAL-Free Report), United Continental Holdings Inc. (NYSE:UAL-Free Report), American Airlines Group Inc. (Nasdaq:AAL-Free Report) and Airgas, Inc. (NYSE:ARG-Free Report).

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Here are highlights from Tuesday's Analyst Blog:

Southwest Targets Rivals' Soft Markets

Leading U.S. passenger carrier Southwest Airlines Co. (NYSE:LUV-Free Report) is eyeing those markets in which rival carriers have downsized their operations. Southwest wants to tap opportunities in these markets by leveraging from its recent slot pair wins in New York and Washington D.C.

The Dallas-based carrier is targeting Memphis, Tennessee, where rival Delta Airlines Inc. (NYSE:DAL-Free Report) trimmed operations last year. Also on Southwest's list is the Midwestern city of Cleveland whichUnited Continental Holdings Inc. (NYSE:UAL-Free Report) no longer wants as its hub. Despite being small markets, Southwest is encouraged by the growth opportunities that these offer. We expect Southwest – known for its low fares – will get a strong foothold in these markets with competitive ticket prices.

Such a practice is not new for Southwest, as the carrier has previously benefited by scaling its operations in the city of Nashville in the 1990s and in St Louis, Missouri, where the erstwhile American Airlines had downsized its service.

The last few months have been really fruitful for Southwest. In Dec 2013, Southwest acquired 22 take-off and landing slots at New York's La Guardia airport (LGA) and recently won bids to purchase 27 take-off and landing slots at Reagan National Airport (DCA) in Washington. The slot purchase is part of a mega merger deal between American Airlines and U.S. Airways Group that led to the formation of American Airlines Group Inc. (Nasdaq:AAL-Free Report).

The company has decided to add flights to Nashville, Texas, Chicago and Ohio from LGA and expects to expand its operations to large and mid-sized cities from DCA. Apart from slot purchases, the company delivered a stellar fourth quarter of 2013, beating the Zacks Consensus Estimate on both lines.

These positives were, supported by the company's announcement that it will operate non-stop flights from Dallas starting Oct 13, when the Wright Amendment act is lifted. Additionally, the major passenger carrier has also decided to fly beyond national boundaries to three destinations in the Caribbean Island from Jul 2014. It is thus an encouraging time for both Southwest investors and passengers.

Southwest sports a Zacks Rank #1 (Strong Buy).

Airgas Down to Underperform

On Feb 7, we downgraded our recommendation from Neutral to Underperform on Airgas, Inc. (NYSE:ARG-Free Report) as its estimates have undergone negative revisions following the third-quarter earnings results and trimmed fiscal 2014 guidance. Helium supply constraints, larger-than-expected R-22 impacts and uncertainty in the construction sector also remain headwinds for this supplier of industrial, medical and specialty gases, and hardgoods.

Why Downgraded?

Airgas, Inc. posted adjusted earnings of $1.18 a share in third-quarter fiscal 2014 (ended Dec 31, 2013), up 13% year over year. For fiscal 2014, Airgas lowered its earnings outlook to $4.75–$4.80 from its previous band of $4.85–$5.00. The reduced outlook reflects choppy end-market trends, weaker-than-expected activity in January 2014 due to unfavorable weather and higher healthcare and e-Business/telesales investments and increased headwind in refrigerants.

Airgas also anticipates that it will fall short of its fiscal 2016 sales target of $6.5 billion, given the sluggish industrial growth as well as slower acquisition activity to date. The company, however, remains optimistic about achieving the lower-end of its margin goal of 15%.

Among other challenges, the global industrial gas industry continues to face helium supply constraints. During fiscal 2013, Airgas helium suppliers continued to fall short of their volume commitments and the company expects some level of supply chain disruption during fiscal 2014 as well.

In March, the U.S. Environmental Protection Agency (EPA) unexpectedly issued a ruling allowing for increased R22 refrigerant production in 2013 contrary to industry and company expectations of further declines. Airgas expects an estimated 17 cents per share (up from the prior expectation of 15 cents per share) year-over-year negative impact in fiscal 2014 related to R-22 pricing and volume following the EPA's ruling.

Airgas noted that in construction, new projects have been slower to gain traction, and the extremely cold weather prevents welding activity on general daily construction projects that make up a good portion of its construction segment.

Economic indicators are also giving mixed signals. Private non-residential construction spending has declined, with the most recent reading in Nov 2013 being 7% lower than last year. Overall, the construction sector will continue to be a drag on Airgas' results.

Airgas retains a short-term Zacks Rank #4 (Sell).

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