Domestic disarray and global volatility were enough troubles for
the market, and the debt ceiling issue added to the ordeal. But the
temporary extension of the Federal Government's borrowing capacity
has put a stopple to the potential default on U.S. debt obligations
and shutdown threats.
Still concerns on the growth aspect of the world's largest economy
persist and the resulting market uncertainty may cast its shadow on
the Airline industry, as its performance has historically been
sensitive to market conditions.
The 2008 recession and fuel price volatility resulted in a downturn
in the Airline industry and the full recovery is still due.
However, given the temporary resolution of the debt ceiling issue,
the outlook for the industry looks bright for the balance of the
year. Particularly, a modest rise in demand and cost-control
measures will help air carriers perform better in the near
The International Air Transport Association (IATA) projects overall
airline profits of $11.7 billion for 2013, with 3.12 billion
passengers in total. As a result, North American carriers are
expected to generate $4.9 billion in profits in 2013, higher than
$2.3 billion earned last year. Based on these facts we suggest
certain stocks in the sector that offer value over the near term.
Given the positive sentiment, it might be a good idea to bet on a
handful of airline stocks that are poised to beat earnings
estimates this quarter.
How to Pick the Best?
An easy way to narrow down the list of choices is to take a look at
stocks with solid Zacks Rank and a favorable Zacks
Earnings ESP is our proprietary methodology for determining which
stocks have the best chance to surprise with their next earnings
announcement. It shows the percentage difference between the Most
Accurate estimate and the Zacks Consensus.
The combination of a favorable Zacks Rank - Zacks Rank #1 (Strong
Buy) or 2 (Buy) or 3 (Hold) - and a positive earnings ESP is
usually a harbinger of earnings beat. Our research shows that for
stocks with this combination, the chance of positive earnings
surprise is as high as 70%.
For investors seeking to benefit by applying this strategy to their
portfolio, we have chosen three airline stocks that are scheduled
to release earnings next week and match these criteria.
Airways Group, Inc.
): Based in Arizona, US Airways Group represents the fifth largest
airline in the country on domestic revenue passenger miles and
available seat miles. The carrier offers scheduled passenger
service in the U.S. and international markets like Canada, Mexico,
Europe, the Middle East, the Caribbean, and Central and South
America. As of Jun 30, 2013, the carrier operated 346 mainline
jets, 238 regional jets and 43 turboprops.
The Zacks Consensus Estimate for US Airways Group is pegged at
$1.07 with year over year growth expectation of 9.5%. The company
has registered an average earnings surprise of 20.85% over the
trailing twelve months.
US Airways Group currently carries a Zacks Rank #2 (Buy) and has an
Earnings ESP of +6.54%. The company is slated to report its third
quarter results on Oct 23.
Alaska Air Group, Inc.
): Passenger and cargo airline, Alaska Air Group, which serves 95
cities via Alaska Airlines and Horizon Air and regional airline
partners has network across Alaska, the Lower 48, Hawaii, Canada
and Mexico. As of Jun 30, 2013, the company's operating fleet
consisted of 176 aircraft that included 128 Boeing 737 jet aircraft
and 48 Bombardier Q400 turboprop aircraft.
Currently, the Zacks Consensus Estimate for Alaska Air Group is
$2.10 with growth expectation of 0.6% over the prior-year quarter.
The company has registered an average earnings surprise of 3.43%
over the trailing twelve months.
Alaska Air Group's Earnings ESP is +1.91% and it carries a Zacks
Rank #2 (Buy). The company is scheduled to report its third quarter
results before the opening bell on Oct 24.
Southwest Airlines Co.
): Dallas-based Southwest Airlines provides low cost passenger air
transportation services in the U.S. It primarily provides
short-haul, high frequency, and point-to-point airline services
covering many secondary or downtown airports such as Dallas Love
Field, Houston Hobby, Chicago Midway, Baltimore/Washington
International, Burbank, Manchester, Oakland and San Jose. In
May 2011, Southwest completed the acquisition of AirTran Holdings,
which now operates as a wholly owned subsidiary under the name
AirTran Airways. As of Jun 30, 2013, Southwest operated 696 Boeing
aircraft and served 97 cities along with AirTran.
The Zacks Consensus Estimates for Southwest Airlines' third quarter
earnings is pegged at 31 cents, representing a robust 141.5% year
over year growth.
The company presently carries a Zacks Rank #3 (Hold) and has an
Earnings ESP of +9.68%. Southwest Airlines is set to report its
third quarter results on Oct 24, before the opening bell.
A precarious economy as well as lingering concerns over debt
ceiling and budget cuts may not look ideal for a bullish market and
even discourage big bets. Nevertheless, if the Airline sector
manages to withstand economic weakness and endure the struggle for
survival, investors could safely rely on its outperformers backed
by their growth potential.
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