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Airlines Report Upbeat Q2 Earnings: Buy the Dip in JETS ETF?
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It’s been more than three weeks since Delta Air Lines Inc. (DAL - Free Report) kick-started the second-quarter earnings season for the airline space. Overall, the season has been upbeat for the industry, with most key U.S. airlines beating on both lines.
However, the pureplay airlines ETF U.S. Global Jets ETF (JETS - Free Report) has lost 5.3% since Delta reported earnings (as of Aug 9, 2023). In fact, the fund underperformed the S&P 500 (down 0.2%) during this phase. A spike in oil prices may have weighed on the airlines ETF as fuel forms a major cost for airlines.
However, one should not overlook better-than-expected U.S. economic growth and a rebound in international travel. Airlines are also mindful of their cost structure, which accounts for likely higher fuel charges going forward.
This gives a good reason for investors to buy JETS on the dip. Still, we need to pay attention to the detailed earnings picture of the industry. Let’s delve a little deeper.
Inside the Earnings
In mid-July, Delta Air Lines (DAL - Free Report) reported better-than-expected revenues and earnings per share (EPS) for second-quarter 2023 driven by strong air travel demand. Earnings of $2.68 per share comfortably beat the Zacks Consensus Estimate of $2.42 while revenues of $15,578 million beat the Zacks Consensus Estimate of $14,991.6 million. Third-quarter earnings are guided in the range of $2.2-$2.5 per share (by management), higher than market expectations. The stock currently has a Zacks Rank #2 (Buy).
A week later, United Airlines Holdings Inc. (UAL - Free Report) reported second-quarter EPS of $5.03, which outpaced the Zacks Consensus Estimate of $3.99 and improved more than 100% year over year. Operating revenues of $14,178 million (up 17% year over year) beat the Zacks Consensus Estimate of $13,927.1 million. UAL expects 2023 EPS in the band of $11.00-$12.00 (higher than the prior view of $10-$12 and above the Zacks Consensus Estimate of $9.79). The stock currently sports a Zacks Rank #1 (Strong Buy).
American Airlines’ (AAL - Free Report) second-quarter earnings (excluding 4 cents from non-recurring items) of $1.92 per share easily beat the Zacks Consensus Estimate of $1.58. Operating revenues of $14,055 million increased 4.7% year over year. The top line beat the Zacks Consensus Estimate of $13,736.3 million. AAL projects the September-end quarter's earnings per share (excluding net special items) in the 85- 95 cent range, higher than the Zacks Consensus Estimate. The stock has a Zacks Rank #2 at present.
In late July, Alaska Air Group Inc. (ALK - Free Report) reported second-quarter EPS of $3.00, which outpaced the Zacks Consensus Estimate of $2.70 and improved 37% year over year. Operating revenues of $2,838 million beat the Zacks Consensus Estimate of $2,780.5 million. The top line jumped 7% year over year. For 2023, ALK continues to expect EPS between $5.50 and $7.50. The Zacks Consensus Estimate of $6.56 lies within the guidance. The stock currently has a Zacks Rank #3 (Hold).
Also in late July, Southwest Airlines Co. (LUV) reported EPS of $1.09 for the second quarter, outpacing the Zacks Consensus Estimate of $1.08 but declining 16.2% on a year-over-year basis. Revenues of $7,037 million beat the Zacks Consensus Estimate of $6,988.7 million and improved 4.6% year over year. Economic fuel costs per gallon are now estimated between $2.70 and $2.80 (prior view: $2.60 and $2.70), which is a negative. The stock currently has a Zacks Rank #4 (Sell).
In early August, JetBlue Airways’(JBLU - Free Report) second-quarter earnings (excluding 4 cents from non-recurring items) of 45 cents per share beat the Zacks Consensus Estimate of 40 cents. Operating revenues of $2,610 million marginally missed the Zacks Consensus Estimate of $2,610.9 million. Shares slumped post earnings due to the bearish guidance issued by management for the third quarter as well as full-year 2023.The stock currently has a Zacks Rank #4.
ETF in Focus
The $1.70-billion fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. All the above-mentioned stocks get a place in the portfolio. The product charges 60 bps in fees.
Bottom Line
While the forthcoming energy cost structure casts a cloud on airlines’ profitability, the hope for steady demand is high and so is airlines’ pricing power. Hence, one can bet on the beaten-down product JETS. However, any kind of worsening in the global economic growth may harm the fund over the medium term.
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Airlines Report Upbeat Q2 Earnings: Buy the Dip in JETS ETF?
It’s been more than three weeks since Delta Air Lines Inc. (DAL - Free Report) kick-started the second-quarter earnings season for the airline space. Overall, the season has been upbeat for the industry, with most key U.S. airlines beating on both lines.
However, the pureplay airlines ETF U.S. Global Jets ETF (JETS - Free Report) has lost 5.3% since Delta reported earnings (as of Aug 9, 2023). In fact, the fund underperformed the S&P 500 (down 0.2%) during this phase. A spike in oil prices may have weighed on the airlines ETF as fuel forms a major cost for airlines.
However, one should not overlook better-than-expected U.S. economic growth and a rebound in international travel. Airlines are also mindful of their cost structure, which accounts for likely higher fuel charges going forward.
This gives a good reason for investors to buy JETS on the dip. Still, we need to pay attention to the detailed earnings picture of the industry. Let’s delve a little deeper.
Inside the Earnings
In mid-July, Delta Air Lines (DAL - Free Report) reported better-than-expected revenues and earnings per share (EPS) for second-quarter 2023 driven by strong air travel demand. Earnings of $2.68 per share comfortably beat the Zacks Consensus Estimate of $2.42 while revenues of $15,578 million beat the Zacks Consensus Estimate of $14,991.6 million. Third-quarter earnings are guided in the range of $2.2-$2.5 per share (by management), higher than market expectations. The stock currently has a Zacks Rank #2 (Buy).
A week later, United Airlines Holdings Inc. (UAL - Free Report) reported second-quarter EPS of $5.03, which outpaced the Zacks Consensus Estimate of $3.99 and improved more than 100% year over year. Operating revenues of $14,178 million (up 17% year over year) beat the Zacks Consensus Estimate of $13,927.1 million. UAL expects 2023 EPS in the band of $11.00-$12.00 (higher than the prior view of $10-$12 and above the Zacks Consensus Estimate of $9.79). The stock currently sports a Zacks Rank #1 (Strong Buy).
American Airlines’ (AAL - Free Report) second-quarter earnings (excluding 4 cents from non-recurring items) of $1.92 per share easily beat the Zacks Consensus Estimate of $1.58. Operating revenues of $14,055 million increased 4.7% year over year. The top line beat the Zacks Consensus Estimate of $13,736.3 million. AAL projects the September-end quarter's earnings per share (excluding net special items) in the 85- 95 cent range, higher than the Zacks Consensus Estimate. The stock has a Zacks Rank #2 at present.
In late July, Alaska Air Group Inc. (ALK - Free Report) reported second-quarter EPS of $3.00, which outpaced the Zacks Consensus Estimate of $2.70 and improved 37% year over year. Operating revenues of $2,838 million beat the Zacks Consensus Estimate of $2,780.5 million. The top line jumped 7% year over year. For 2023, ALK continues to expect EPS between $5.50 and $7.50. The Zacks Consensus Estimate of $6.56 lies within the guidance. The stock currently has a Zacks Rank #3 (Hold).
Also in late July, Southwest Airlines Co. (LUV) reported EPS of $1.09 for the second quarter, outpacing the Zacks Consensus Estimate of $1.08 but declining 16.2% on a year-over-year basis. Revenues of $7,037 million beat the Zacks Consensus Estimate of $6,988.7 million and improved 4.6% year over year. Economic fuel costs per gallon are now estimated between $2.70 and $2.80 (prior view: $2.60 and $2.70), which is a negative. The stock currently has a Zacks Rank #4 (Sell).
In early August, JetBlue Airways’ (JBLU - Free Report) second-quarter earnings (excluding 4 cents from non-recurring items) of 45 cents per share beat the Zacks Consensus Estimate of 40 cents. Operating revenues of $2,610 million marginally missed the Zacks Consensus Estimate of $2,610.9 million. Shares slumped post earnings due to the bearish guidance issued by management for the third quarter as well as full-year 2023.The stock currently has a Zacks Rank #4.
ETF in Focus
The $1.70-billion fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. All the above-mentioned stocks get a place in the portfolio. The product charges 60 bps in fees.
Bottom Line
While the forthcoming energy cost structure casts a cloud on airlines’ profitability, the hope for steady demand is high and so is airlines’ pricing power. Hence, one can bet on the beaten-down product JETS. However, any kind of worsening in the global economic growth may harm the fund over the medium term.