US Airways Group Inc.
) has been in an uptrend with strong momentum ever since announcing its intension to merge with currently bankrupt American Airlines. The proposed merger would benefit US Airways in several ways, including significant geographical expansion, top-line growth, massive cost synergies, and improvement of operational as well as customer service. Shares are up more than 157% year to date.
US Airways beat the Zacks Consensus Estimate by 43.48% in the first quarter of 2012. Earnings estimates have been moving higher since then, making the company a Zacks #2 Rank (Buy) stock. The acquisition of American Airlines would provide US Airways necessary scale to challenge its large counterparts, such as United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL).
Robust First Quarter
On April 25, US Airways reported an adjusted net loss for the first quarter of $0.13, which was narrower than the Zacks Consensus Estimate for a loss of $0.23. The loss for the quarter also narrowed 80.88% from the year-ago loss of $0.68 per share. First quarter total operating revenue of approximately $3.27 billion surpassed the Zacks Consensus Estimate by 1.21% while improving 10.3% year over year.
Despite facing enormous rises in fuel prices, the company achieved several operational milestones. Quarterly total revenue per available seat miles was at a record high of 15.45 cents, up 7.1% year over year. Similarly, the company reported a record breaking quarterly load factor of 79.3%, compared with 78% in the year-ago quarter. Passenger yield was up 6.5% year over year. Operating income was $59 million, reversing from an operating loss of $39 million in the year-ago quarter.
Earnings Estimates Shoot Up
Earnings estimates for US Airways have been rising significantly over the last 60 days. The Zacks Consensus Estimate for 2012 moved up 37.76% to $2.70, while it increased 40.82% to $3.45 for 2013. The current Zacks Consensus Estimate for 2012 indicates a massive growth of 297.33% year over year. Furthermore, the current estimate for 2013 implies a year-over-year growth of another 27.52%.
US Airways currently looks attractive with respect to most of the valuation metrics. The stock currently trades at a forward P/E of 4.87x, implying a discount of over 170% from the peer group average of 13.15x. The price-to-sales ratio of 0.16x is at 56.25%, a discount to the peer average of 0.25x. Furthermore, the company has a 1-year ROE of 140.4%, compared with 4.1% for its peers.
Shares of US Airways have consistently moved upward since March 2012. The stock reached $13.78 in June 21, the highest since February 27, 2008. This was primarily due to a significant boost of the proposed merger after the pilots union of American Airlines rejected its final contract offer.
The stock has been consistently trading above 200-day moving averages since February 2012 and above the 50-days moving averages since mid-April 2012. The stock price is also above the S&P 500 average line since April 25, 2012. The widening gap between the stock price line and that of 50-days, 200-days moving averages and the S&P 500 average lines show the growing momentum of US Airways.
Headquartered in Tempe, Arizona, US Airways Group Inc. was founded in 1981 and is currently the fifth biggest airline in the U.S. The company provides air transportation for passengers and cargo between the U.S., Canada, Mexico, Europe, the Middle East, the Caribbean, and Central and South America.