Earnings season comes four times a year and not only is there
a predictable schedule to when companies will be releasing
quarterly reports en masse, there is also a predictable schedule
within each earnings season. Companies in the same industry tend
to group their earnings together into a relatively small portion
of the larger earnings season.
Last week we looked at financial companies, which are
traditionally among the first groups to report. This week we're
looking at the airlines. That may be surprising to anyone
familiar with what has traditionally been a industry associated
with relatively frequent bankruptcy, but after several rounds of
consolidation and various bankruptcies eliminating or lessening a
lot of the pension and other union-related overhead that have
been a drag on the industry in the past, the airlines looks like
they could be ready to soar.
One of the best performing names in the sector since the Great
Recession is probably only familiar to fliers on the West Coast,
Alaska Air Group (
). The company, which is actually based in Seattle, flies between
95 cities in Alaska, Canada, Mexico, Hawaii and the 48 contiguous
states. It also operates as a regional airline in the western
U.S. and the state of Alaska.
The company carries a higher percentage of passengers flying
for vacation or other leisure activities than other airlines, but
that could be a positive if the economy continues to expand. The
company is also likely to see higher margins from the low oil
prices created by the fracking boom and a continued stagnation in
What has the company done lately? It earned $1.11 per share in
the fourth quarter, compared to 61 cents in year-ago quarter. On
an adjusted basis, the company earned $1.11 per share, topping
estimates for $1.07 per share.
The stock slid after the report was released, largely due to
concerns about increased costs in the first part of 2014.
Analysts believe those costs are likely to be weighted toward the
first part of 2014 and should be lower as the year
progresses. None of those issues: changes to deals with
pilots and flight attendants, airport fees and other non-fuel
costs seem all that out of the ordinary, and are unlikely to
balloon into a real problem for the company.
Chart courtesy of
Given the relative stability we've seen in oil prices
recently, I like the airlines right now. The economy appears to
be finding its footing, which is likely to result in more people
flying. Unless something happens to drastically alter the price
of oil, Alaska Air should be in good shape for a while.
Traders looking to take advantage of the strength in the
airlines could consider a March 70/75 bull-put credit spread.
That yields a 65-cent credit, which is a 14.94% return, or 101%
on an annualized basis (for comparison purposes only). This
position returns a full profit so long as the stock closes above
$75 at March expiration, giving it about 7.5% downside