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The Zacks Analyst Blog Highlights: Safeway, Boeing, Textron, Lockheed Martin and Huntington Ingalls Industries

CHICAGO, June 14, 2013 /PRNewswire/ -- 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 Safeway Inc. (NYSE:SWY-Free Report), The Boeing Company (NYSE:BA-Free Report), Textron Inc. (NYSE:TXT-Free Report), Lockheed Martin Corp. (NYSE:LMT-Free Report) and Huntington Ingalls Industries Inc. (NYSE:HII-Free Report).

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

Here are highlights from Thursday's Analyst Blog:

Safeway to Sell Canadian Ops for $5.68B

Finally, Safeway Inc. (NYSE:SWY-Free Report) has reached a conclusive decision with respect to its Canadian operations. Share price of this food and drug retailer climbed 29.68% (or $6.86) higher during the after-trading hours following the company's announcement of an agreement to sell its Canadian operations. The stock was also up 24.45% (or $5.64) before the opening bell on Thursday.

Safeway inked a definitive agreement to divest its business operations in Canada – Canada Safeway Limited to Canadian food retailer Sobeys Inc. for $5.68 billion in cash (roughly $3.91 billion after taxes and expenses), plus the assumption of certain liabilities. Empire Company Limited owns the Sobeys supermarket chain.

Safeway is still liable for roughly $294 million of Canada Safeway's public debt due Mar 2014. It will also retain cash and other receivables of a similar amount.

Safeway's net asset sale to Sobeys include its 213 full grocery stores in Western Canada, 199 in-store pharmacies, 62 co-located fuel stations, 10 liquor stores, 4 primary distribution centers and the related wholesale business and 12 manufacturing facilities in Canada.

The transaction is expected to close in the fourth quarter of 2013, subject to standard closing conditions. The company will report Canada Safeway as discontinued operations from the second quarter of 2013.

Safeway plans to use the net proceeds to repay $2 billion of its debt. Until the most recent quarter, the company continued to operate with a high debt level of $5.3 billion. As reported earlier, the first-quarter debt level was higher than the debt of $5.2 billion in the sequentially prior quarter. Safeway's highly leveraged balance sheet was a cause of concern for investors.

According to the company, the bulk of the remainder will be used for share repurchases. As reported earlier, Safeway did not repurchase any shares in the last three quarters. Presently, the company is left with $0.8 billion of authorization to buy back shares. Shareholders should look forward to attractive returns in the form of share buybacks in the near future.

Going forward, Safeway's share buyback activity along with lower interest expense, owing to reduced debt level, should further leverage earnings in the upcoming quarters.

Our View

Although the company asserts that the divestment reflects a deft plan to sharpen focus on the U.S. market, we remain apprehensive due to the lack of clarity on management plans to gain momentum in the domestic market.

Notably, Safeway's Canadian operations have been more profitable than the U.S. operations, as seen in the level of operating profit over the past few years. In 2012, the company recorded operating profit of approximately 2% and 5.4% in the U.S. and Canada, respectively.

Boeing, TXT Get V-22 Osprey Order

The Boeing Company (NYSE:BA-Free Report) and Bell Helicopter, a unit of Textron Inc. (NYSE:TXT-Free Report), have received a five-year modification contract worth $4.9 billion for the manufacture of 99 V-22 Osprey tiltrotor aircraft.

Specifically, Bell-Boeing Joint Project Office will produce 92 MV-22 Osprey aircraft for the U.S. Marine Corps, and seven carrier-variant CV-22s for the U.S. Navy. The contract work is expected to be completed by Sep 2019.

Taking into account the $1.4 billion preliminary contract that the joint venture received in Dec 2012, the value of the contract comes to $6.3 billion. In Dec 2012, the joint venture had received a contract to produce 21 V-22 Osprey.

Boeing, in collaboration with Bell Helicopter, has built the V-22 aircraft. The V-22 Osprey is a joint service multi-role combat aircraft that can fly as fast as a plane and land like a helicopter. The aircraft has the capacity to carry 24 combat troops, or up to 20,000 pounds of internal cargo or 15,000 pounds of external cargo.

Diversified network of both the companies negates any specific business risk. Going forward, Textron's diversified presence across commercial, manufacturing and industrial products, as well as financing operations and strong demand for Boeing's defense products would keep them well-positioned.  

However, the adverse effects of sequestration cannot be ignored. In fact, in April, the budget cuts from sequestration have reduced the number of contracts awarded by the Department of Defense to major defense contractors. Defense contractors, including Boeing, have not been spared from the negative impacts of sequestration.

Even Lockheed Martin Corp. (NYSE:LMT-Free Report) and Huntington Ingalls Industries Inc. (NYSE:HII-Free Report) are part of this $37 billion sequestration cut made due to the automatic spending reduction that took effect from Mar 1, 2013. In Feb 2013, the government had announced $1.2 trillion in automatic cuts by 2021. In accordance to sequestration, funding for V-22s has experienced an $18 million reduction.

Boeing presently retains a Zacks Rank #3 (Hold) while Textron carries a Zacks Rank #4 (Sell).

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

About Zacks Equity Research

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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