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For Immediate Release
Chicago, IL – March 2, 2012 – 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 United Continental Holdings ( , Deere & Company ( , Caterpillar Inc. ( , CNH Global NV ( and Kubota Corporation ( .
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Here are highlights from Thursday’s Analyst Blog:
United Continental’s New Labor Deal
Following the labor agreement with International Brotherhood of Teamsters, United Continental Holdings ( has reached another milestone in integrating its workforce by ratifying a new labor agreement involving 15,000 United Airlines flight attendants represented by the Association of Flight Attendants (AFA-CWA).
According to the deal, United’s employees will receive a 10% compensation hike and a signing bonus of $5,000. Additionally, this new contract will expedite the process of negotiating a single contract covering flight attendants of both the airlines, United and Continental.
United and Continental merged in 2010 to form United Continental Holdings. Currently, AFA-CWA represents both groups of flight attendants, though AFA-CWA administers the contract negotiated and ratified by the Continental Flight Attendants and the International Association of Machinists and Aerospace Workers (IAMAW) previously.
In February last year, the company signed a contract with the flight attendants of Continental Airlines. IAMAW, however, still represent Continental’s flight attendants and will continue to do so until a single contract is approved. We believe that the company’s effort to integrate its workforce will have positive implications for its operational efficiency and also save costs for the combined entity.
Apart from integrating employee groups, the carrier is also contemplating combining passenger services of both the airlines. The integration process remains on track with United Continental Holdings receiving a single operating certificate from the Federal Aviation Administration (FAA) on November 30, 2011.The company expects to operate a single passenger service system by March this year through the consolidation of its information systems, fleet reallocations, carrier codes, flight schedules, inventory and departure control systems.
The merger is expected to generate net annual synergies of $1 billion to $1.2 billion by 2013, with $800 million to $900 million in additional revenue and $200 million to $300 million in cost savings. Approximately 25% of total synergies were realized last year. With the company’s sound cash position, industry-leading revenues and competitive cost structure, the merger provides improved access from Continental hubs to United’s strong Asia network and from United’s hubs to Continental’s international network in Latin America and Europe.
Deere Hikes Dividend
Deere & Company ( has upped its quarterly dividend by 5 cents to 46 cents. This marks the tenth consecutive year of the company’s dividend hike. The increased dividend will be payable on May 1, 2012 to shareholders of record as on March 30, 2012.
The dividend increase, which translates into a 12% raise from the prior dividend of 41 cents, came after nearly nine months. On May 24, 2011, Deere increased its dividend by 6 cents to 41 cents.
Deere reported earnings of $1.30 per share; an improvement of 8% from the prior year quarter of $1.20. Results exceeded the Zacks Consensus Estimate of $1.23.
The company’s worldwide total sales were recorded at $6.8 billion, which increased 11% year over year. Total revenue outperformed the Zacks Consensus Estimate of $6.49 billion.
The improvement in the first quarter results of fiscal 2012 was attributable to several factors. The company performed well across all its segments. In addition, healthy demand for farm machinery also contributed to the performance.
Deere started 2012 on a good note with a strong performance in the first quarter. It sets a net income target of $3.275 billion for 2012. The Zacks Consensus Estimate for second quarter 2012 earnings per share is $1.01.
The company is intent on providing consistent cash dividends, thereby increasing shareholders value. It expects to deliver increased dividends targeting an average payout ratio in the band of 25%-30%. Deere expects nearly $3.5 billion cash flow from Equipment Operations in 2012.
Current annualized dividend yield of Deere is 1.97%. Caterpillar, the nearest peer of Deere, lags behind it with an annualized dividend yield of 1.59%. Deere’s dividend payout ratio of 22.63% is less than Caterpillar’s 23.86%. Caterpillar had increased its dividend by 12% in June 2011 to 46 cents per share.
Deere has a better cash and cash equivalents of $3.4 billion compared to $3.1 billion of Caterpillar. Deere commands industry leading net margins, its trailing twelve months’ net margin of 8.74%, surpassing Caterpillar’s 8.32% and the industry margin of 7.24%. We thus believe Deere has ample scope to increase its dividend yield and payout ratio.
R&D expenses increased 16% year over year in the first quarter of 2012. R&D spending is expected to be up by 12% for the year. The expenses are expected to remain high for the next few years also as Deere approaches significant product launches with Interim 4 engines and meets final Tier-4 emission standards.
The shares of the company currently retain Zacks #2 Rank (short-term “Buy” recommendation). It competes with the likes of Caterpillar Inc. ( , CNH Global NV ( and Kubota Corporation ( .
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