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Turbulent Q3 Awaits Airlines? 4 Stocks to Sell Pre-Earnings
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Stocks in the airline space have been going through tough times of late. Major airline companies are severely hurt from the consecutive impacts of Harvey and Irma. Consequently airline stocks have lowered their guidance for the upcoming quarter.
The airline companies are expected to reveal third-quarter 2017 earnings numbers next month. With the tropical storms bearing heavily on the airline companies, the scenario for future looks very grim.
Bleak Third-Quarter Forecasts
Several airline companies have trimmed their third-quarter outlook, primarily due to natural disasters.
United Continental Holdings (UAL - Free Report) , the parent company of United Airlines, the worst hit from Harvey has reduced views with respect to pre-tax margin and passenger revenue per available seat mile (PRASM: a key measure of unit revenue) for the current quarter. The carrier now expects PRASM to decline between 3% and 5% year over year (the earlier guidance provided in July had called for the metric to be in the range of +1% to -1%).
The carrier currently expects pre-tax margin between 8% and 10% (previous outlook had called for the metric to be in the range of 12.5-14.5%). Higher fuel prices are also estimated to hamper the bottom line in the third quarter. Fuel price per gallon is now projected in the band of $1.72-$1.77 (earlier view: $1.56-$1.61). Cost per available seat miles, excluding fuel, profit-sharing, third-party business expenses and other special items are now projected to increase between 2.5% and 3.5% (earlier outlook had called for a rise in the 2-3% range).
The Chicago-based company now expects capacity to grow between 3% and 3.5% compared with the approximate 4% expansion projected earlier.
Spirit Airlines (SAVE - Free Report) with significant exposure to Houston expects the top line to shrink to the tune of approximately $8.5 million in the third quarter due to natural calamity. Currently, Spirit Airlines anticipates total revenue per available seat mile (TRASM: a key measure of unit revenue) in the current quarter to fall between 7% and 8.5% (the earlier guidance had called for a drop in the band of 2-4%). Aggressive competitive pricing in key markets also contributed to this bleak forecast.
Delta Air Lines (DAL - Free Report) also trimmed outlook for the third quarter due to stiffer competition and higher fuel costs. The carrier now estimates passenger unit revenue for the said quarter to improve in the range of 2-3%. Past view had called for growth in the 2.5-4.5% band. The airline also raised outlook for fuel prices to $1.68-$1.73 from the earlier $1.55-$1.60 bracket on the back of upsurge in market price, which began in late July.
Apart from the above carriers, the likes of JetBlue Airways Corp. (JBLU - Free Report) and Southwest Airlines Co. (LUV - Free Report) also cut their respective unit revenue views for the third quarter. American Airlines Group (AAL - Free Report) expects TRASM to grow at a slower pace in the third quarter due to difficult year-over-year comparisons.
High Labor Costs
Steep labor costs have been hitting the airline stocks for quite some time now. In fact, the future scenario also seems dull and the metric is expected to affect the third-quarter results as well.
Zacks Industry Rank Highlights the Drab Scenario
The Zacks Industry Rank of 202 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the plight of the airlines. This unfavorable rank places the companies in the bottom 21% of the Zacks industries.
We classify our entire 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the past decade, using a week’s rebalance, the top half beat the bottom half by a factor of more than 2 to 1.
The dim outlook of the airlines is evident from the fact that the Zacks Airline Industry has underperformed the broader market in the last three months. While the S&P 500 index has gained 2.4%, the industry has declined 4.2%.
4 Airline Stocks to Dump Now
Keeping the above-mentioned headwinds in view, we have zeroed in on four stocks for investors to offload from their respective portfolios.
Spirit Airlines, Inc. operates an airline based in Fort Lauderdale, providing travel opportunity principally to and from South Florida, the Caribbean as well as Latin America. The company based in Miramar, FL currently carries a Zacks Rank #5 (Strong Sell) and has a Momentum Score of F, highlighting its short-term lack of appeal. The earnings per share growth rate of the company for the next five years is 8%, which compares unfavorably with the industry’s 9.1%.
The stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 17.6% downward in the last 30 days.
Alaska Air Group, Inc.(ALK - Free Report) is a holding company of primarily Alaska Airlines, Virgin America and Horizon Air Industries. The company based in SeaTac, WA carries a Zacks Rank #5 and a Momentum Score of D. The earnings per share growth rate of the company for the next five years is 6.3% and the reading is much below the industry’s 9.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for current-quarter earnings has been revised 2.4% downward over the last 30 days.
United Continental Holdings, Inc. is the holding company for United Airlines and Continental Airlines. The company based in Chicago, IL carries a Zacks Rank #5 and a Momentum Score of F. The coming five years’ earnings per share growth rate of the company is 6.1%, lagging the industry’s reading of 9.1%.
The Zacks Consensus Estimate for current-quarter earnings has been revised 32.4% downward in the last 30 days.
Delta Air Lines, Inc. is a leading international carrier in America. The company headquartered in Atlanta, GA carries a Zacks Rank #5 and a Momentum Score of F. The company’s earnings per share growth rate for the next five years is 7.6%, falling short of the industry’s 9.1% figure.
The Zacks Consensus Estimate for current-quarter earnings has been revised 11.1% downward in the past 30 days.
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Image: Bigstock
Turbulent Q3 Awaits Airlines? 4 Stocks to Sell Pre-Earnings
Stocks in the airline space have been going through tough times of late. Major airline companies are severely hurt from the consecutive impacts of Harvey and Irma. Consequently airline stocks have lowered their guidance for the upcoming quarter.
The airline companies are expected to reveal third-quarter 2017 earnings numbers next month. With the tropical storms bearing heavily on the airline companies, the scenario for future looks very grim.
Bleak Third-Quarter Forecasts
Several airline companies have trimmed their third-quarter outlook, primarily due to natural disasters.
United Continental Holdings (UAL - Free Report) , the parent company of United Airlines, the worst hit from Harvey has reduced views with respect to pre-tax margin and passenger revenue per available seat mile (PRASM: a key measure of unit revenue) for the current quarter. The carrier now expects PRASM to decline between 3% and 5% year over year (the earlier guidance provided in July had called for the metric to be in the range of +1% to -1%).
The carrier currently expects pre-tax margin between 8% and 10% (previous outlook had called for the metric to be in the range of 12.5-14.5%). Higher fuel prices are also estimated to hamper the bottom line in the third quarter. Fuel price per gallon is now projected in the band of $1.72-$1.77 (earlier view: $1.56-$1.61). Cost per available seat miles, excluding fuel, profit-sharing, third-party business expenses and other special items are now projected to increase between 2.5% and 3.5% (earlier outlook had called for a rise in the 2-3% range).
The Chicago-based company now expects capacity to grow between 3% and 3.5% compared with the approximate 4% expansion projected earlier.
Spirit Airlines (SAVE - Free Report) with significant exposure to Houston expects the top line to shrink to the tune of approximately $8.5 million in the third quarter due to natural calamity. Currently, Spirit Airlines anticipates total revenue per available seat mile (TRASM: a key measure of unit revenue) in the current quarter to fall between 7% and 8.5% (the earlier guidance had called for a drop in the band of 2-4%). Aggressive competitive pricing in key markets also contributed to this bleak forecast.
Delta Air Lines (DAL - Free Report) also trimmed outlook for the third quarter due to stiffer competition and higher fuel costs. The carrier now estimates passenger unit revenue for the said quarter to improve in the range of 2-3%. Past view had called for growth in the 2.5-4.5% band. The airline also raised outlook for fuel prices to $1.68-$1.73 from the earlier $1.55-$1.60 bracket on the back of upsurge in market price, which began in late July.
Apart from the above carriers, the likes of JetBlue Airways Corp. (JBLU - Free Report) and Southwest Airlines Co. (LUV - Free Report) also cut their respective unit revenue views for the third quarter. American Airlines Group (AAL - Free Report) expects TRASM to grow at a slower pace in the third quarter due to difficult year-over-year comparisons.
High Labor Costs
Steep labor costs have been hitting the airline stocks for quite some time now. In fact, the future scenario also seems dull and the metric is expected to affect the third-quarter results as well.
Zacks Industry Rank Highlights the Drab Scenario
The Zacks Industry Rank of 202 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the plight of the airlines. This unfavorable rank places the companies in the bottom 21% of the Zacks industries.
We classify our entire 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the past decade, using a week’s rebalance, the top half beat the bottom half by a factor of more than 2 to 1.
Click here to know more: About Zacks Industry Rank
Price Performance
The dim outlook of the airlines is evident from the fact that the Zacks Airline Industry has underperformed the broader market in the last three months. While the S&P 500 index has gained 2.4%, the industry has declined 4.2%.
4 Airline Stocks to Dump Now
Keeping the above-mentioned headwinds in view, we have zeroed in on four stocks for investors to offload from their respective portfolios.
Spirit Airlines, Inc. operates an airline based in Fort Lauderdale, providing travel opportunity principally to and from South Florida, the Caribbean as well as Latin America. The company based in Miramar, FL currently carries a Zacks Rank #5 (Strong Sell) and has a Momentum Score of F, highlighting its short-term lack of appeal. The earnings per share growth rate of the company for the next five years is 8%, which compares unfavorably with the industry’s 9.1%.
The stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 17.6% downward in the last 30 days.
Alaska Air Group, Inc. (ALK - Free Report) is a holding company of primarily Alaska Airlines, Virgin America and Horizon Air Industries. The company based in SeaTac, WA carries a Zacks Rank #5 and a Momentum Score of D. The earnings per share growth rate of the company for the next five years is 6.3% and the reading is much below the industry’s 9.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for current-quarter earnings has been revised 2.4% downward over the last 30 days.
United Continental Holdings, Inc. is the holding company for United Airlines and Continental Airlines. The company based in Chicago, IL carries a Zacks Rank #5 and a Momentum Score of F. The coming five years’ earnings per share growth rate of the company is 6.1%, lagging the industry’s reading of 9.1%.
The Zacks Consensus Estimate for current-quarter earnings has been revised 32.4% downward in the last 30 days.
Delta Air Lines, Inc. is a leading international carrier in America. The company headquartered in Atlanta, GA carries a Zacks Rank #5 and a Momentum Score of F. The company’s earnings per share growth rate for the next five years is 7.6%, falling short of the industry’s 9.1% figure.
The Zacks Consensus Estimate for current-quarter earnings has been revised 11.1% downward in the past 30 days.
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates and spending surges in defense and infrastructure.
See these buy recommendations now >>