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Despite ongoing quality issues at airplane manufacturer Boeing (BA - Free Report) , sky-high oil prices, and supply chain issues, airline stocks are performing surprisingly well of late and deserve a second look from investors. Against all odds, the Zacks Transportation-Airline industry is a top 37% group (93 out of 251), and the U.S. Global Jets ETF ((JETS - Free Report) ), a proxy for airline stocks, is up an impressive32% over the past six months, far outpacing the S&P 500 Index.
Often, stocks tend to turn long before it’s obvious that the underlying industry has turned. As Wayne Gretzky says, “Skate to where the puck is going not to where it has been.” Below are three ways to play a potential turn in the airline industry.
The global airline manufacturing market is dominated by to major players: Netherlands-based Airbus ((EADSY - Free Report) ) and Boeing. Boeing has been the premier manufacturer of commercial jetliners for decades. However, recently the company’s reputation has taken a significant hit due to ongoing safety issues with its aircrafts.
Duopoly & Backlog
Supply chain issues and safety concerns have led to a significant slowdown in Boeing’s deliveries. Nevertheless, the company is working to repair its reputation by naming a new CEO for its commercial airplane division. Regardless of Boeing’s safety issues, it’s important to understand that clients only have a choice between Airbus and Boeing, and many have already inked deals with Boeing. In fact, Boeing currently has a massive backlog of $520 billion! In other words, if the company can clean up its safety concerns, earnings will explode.
Rallying Despite Negative News
Last week, credit rating agency Moody’s slashed Boeing’s credit rating to Baa3. However, investors should pay attention to a stock’s reaction to news rather than the news itself. Since the downgrade, the stock is up ~10%, evidence that the bad news may have already been baked into shares.
Image Source: Zacks Investment Research
Expected to Swing Back to Profit in 2024
Investors should never view fundamentals in a vacuum. For example, Carvana ((CVNA - Free Report) ) is up more than 1,500% over the past year because its fundamentals went from near-bankruptcy to strong. Boeing is an example of a similar turnaround play. After five years of deep losses, analysts expect BA to swing to a profit in 2024.
Earlier this month, UAL shares exploded by 17% on volume turnover which was five times the norm after reporting earnings. Revenues increased nearly 20% year-over-year, aided by an uptick in air-travel demand.
New Destinations
Beyond renewed post-Covid travel demand, the airline is benefitting from the addition of six new destinations in a partnership with Brazilian Airline Azul ((AZUL - Free Report) ).
Positive EPS Surprise History
Despite the volatility in airline industry conditions, UAL has bested Zacks Consensus Estimates for seven straight quarters, including a 71% positive surprise in the most recent quarter.
Unlike many airlines, Delta is not reliant on Boeing filling its massive backlog. The company has a modern fleet and inked a deal to buy 20 Airbus wide jets. The Airbus planes offer fuel efficiency and greater cargo capabilities than many of its current planes.
Strong Earnings Despite Higher Oil Prices
Last quarter, DAL earnings increased by a healthy 42% in the wake of higher energy prices. If energy prices continue to decline, earnings should explode.
Bottom Line
The airline industry is flourishing despite a plethora of industry challenges. Three airline-related stocks offer great reward-to-risk zones.
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Airline Stocks Fly High: Buy These 3
Despite ongoing quality issues at airplane manufacturer Boeing (BA - Free Report) , sky-high oil prices, and supply chain issues, airline stocks are performing surprisingly well of late and deserve a second look from investors. Against all odds, the Zacks Transportation-Airline industry is a top 37% group (93 out of 251), and the U.S. Global Jets ETF ((JETS - Free Report) ), a proxy for airline stocks, is up an impressive32% over the past six months, far outpacing the S&P 500 Index.
Often, stocks tend to turn long before it’s obvious that the underlying industry has turned. As Wayne Gretzky says, “Skate to where the puck is going not to where it has been.” Below are three ways to play a potential turn in the airline industry.
Boeing ((BA - Free Report) )
The global airline manufacturing market is dominated by to major players: Netherlands-based Airbus ((EADSY - Free Report) ) and Boeing. Boeing has been the premier manufacturer of commercial jetliners for decades. However, recently the company’s reputation has taken a significant hit due to ongoing safety issues with its aircrafts.
Duopoly & Backlog
Supply chain issues and safety concerns have led to a significant slowdown in Boeing’s deliveries. Nevertheless, the company is working to repair its reputation by naming a new CEO for its commercial airplane division. Regardless of Boeing’s safety issues, it’s important to understand that clients only have a choice between Airbus and Boeing, and many have already inked deals with Boeing. In fact, Boeing currently has a massive backlog of $520 billion! In other words, if the company can clean up its safety concerns, earnings will explode.
Rallying Despite Negative News
Last week, credit rating agency Moody’s slashed Boeing’s credit rating to Baa3. However, investors should pay attention to a stock’s reaction to news rather than the news itself. Since the downgrade, the stock is up ~10%, evidence that the bad news may have already been baked into shares.
Image Source: Zacks Investment Research
Expected to Swing Back to Profit in 2024
Investors should never view fundamentals in a vacuum. For example, Carvana ((CVNA - Free Report) ) is up more than 1,500% over the past year because its fundamentals went from near-bankruptcy to strong. Boeing is an example of a similar turnaround play. After five years of deep losses, analysts expect BA to swing to a profit in 2024.
Image Source: Zacks Investment Research
United Airlines ((UAL - Free Report) )
Rising Demand
Earlier this month, UAL shares exploded by 17% on volume turnover which was five times the norm after reporting earnings. Revenues increased nearly 20% year-over-year, aided by an uptick in air-travel demand.
New Destinations
Beyond renewed post-Covid travel demand, the airline is benefitting from the addition of six new destinations in a partnership with Brazilian Airline Azul ((AZUL - Free Report) ).
Positive EPS Surprise History
Despite the volatility in airline industry conditions, UAL has bested Zacks Consensus Estimates for seven straight quarters, including a 71% positive surprise in the most recent quarter.
Image Source: Zacks Investment Research
Delta Airlines ((DAL - Free Report) )
Modern Fleet with Airbus
Unlike many airlines, Delta is not reliant on Boeing filling its massive backlog. The company has a modern fleet and inked a deal to buy 20 Airbus wide jets. The Airbus planes offer fuel efficiency and greater cargo capabilities than many of its current planes.
Strong Earnings Despite Higher Oil Prices
Last quarter, DAL earnings increased by a healthy 42% in the wake of higher energy prices. If energy prices continue to decline, earnings should explode.
Bottom Line
The airline industry is flourishing despite a plethora of industry challenges. Three airline-related stocks offer great reward-to-risk zones.