Zacks Industry Rank Analysis is written by John Blank, PhD, Chief Equity Strategist, Zacks.com.
Airline Stocks About to Take Off
It's nearly impossible to discuss any positive news about the airline industry without inadvertently invoking flight-related metaphors. Nevertheless, recent earnings reports have inspired quite a few well-deserved nods of accomplishment.
The Airline Transportation sector of the Zacks Industry Rank list gained 84 positions last week; with several new earnings reports beating expectations. This is a large category of 25 companies, which now holds a rank of #92 out of 260 sectors. This is a boost of +84 positions over just one week. With positive earnings revisions outpacing negative 44 to 13, airlines are now averaging positive Earnings per Share (EPS) surprises of +27%.
There are a number of factors affecting this turnaround: reduced labor costs, increased consumer spending (dollar per mile), fewer flight cancellations, increased carrying capacity and the simple fact that people are just flying more this year compared to last. Combined, this means good news for an industry which has hurt more than most over the past decade.
Two of the carriers which stood out this week are turning these trends into revenue. With upgrades to a Zacks Rank #1 (Strong Buy) from a "Buy" rating or to a Zacks Rank #2, this may indicate a positive future performance for these stocks in response to further positive earnings estimate revisions. Paying attention to sector performance, which affects not only individual businesses but the industry as a whole, is beneficial in developing a good investment strategy.
This industry seems to have departed its most turbulent years, with the tailwind of economic turnaround giving investors a first-class ticket to soaring profits. Just beware the overhead baggage of rising fuel costs which may delay earnings and lead investors to find the nearest exit row. Metaphorically speaking, of course!
SAVE was upgraded to a Zacks Rank #2 (Buy) last week from #3 (Neutral). Its next expected earnings report is on October 30, 2013.
Spirit Airlines Inc. operates an airline based in Fort Lauderdale providing travel opportunity principally to and from South Florida, the Caribbean and Latin America. Spirit Airlines Inc. is based in Miramar, Florida. It is looking for +14% annual sales growth and +19% annual earnings growth next year.
This airline has strung together an impressive series of either meeting earnings expectations, or answering with a beat. It has had an earnings surprise of up +15% in the last three quarters. According to the most accurate analyst, the coming quarterly report on October 30 looks to offer a +10% beat.
RJET is a Zacks Rank #1 (Strong Buy). It moved up from a Zacks Rank #2 (Buy) last week. This company reports quarterly earnings on October 30, 2013.
Republic Airways Holdings, based in Indianapolis, Indiana, is an airline holding company that owns Chautauqua Airlines, Frontier Airlines, Republic Airlines and Shuttle America flights operated under partner brands, including American Eagle, Delta Connection, United Express and US Airways Express.
The airline currently employs approximately 10,000 aviation professionals. Republic Airways carried +7% more passengers in September than in the same period in 2012. RJET's most recent earnings surprise was +7%.
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UAL led the rally, boosted by a Goldman Sachs report raising its 2007 earnings and price targets for the company, as well as an upgrade by Calyon Securities.