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Brexit or Earnings: What Will Decide the Route Map for Airline ETF?
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The pure-play aviation ETF U.S. Global Jets ETF (JETS - Free Report) has been flying low this year, having lost about 3.7% (as of October 31, 2016). The Brexit decision, the volatility in currencies, terror attacks and global growth concerns have been weighing on airline stocks. The sector is in the bottom 9% of the Zacks Industry Rank at the time of this writing, giving bearish signals for the entire industry (see all industrial ETFs here).
Against such a backdrop, let’s take a look at some of the key third-quarter 2016 earnings in the sector:
Q3 Results in Detail
Delta Air Lines Inc. (DAL - Free Report) unveiled the third-quarter earnings season in the airline space with a bottom-line beat and top-line miss. Operating revenues of $10.483 billion were marginally short of the Zacks Consensus Estimate of $10.595 billion and 6% lower than the year-ago figure. The carrier’s earnings (excluding special items) of $1.70 per share beat the Zacks Consensus Estimate by 5 cents. Earnings, however, fell 2.3% on a year-over-year basis. DAL has a VGM score of ‘B.’
United Continental Holdings (UAL - Free Report) posted an earnings beat in the third quarter. Earnings (on an adjusted basis) of $3.11 per share beat the Zacks Consensus Estimate by 6 cents. Earnings, however, declined 31.4% on a year-over-year basis, owing to lower revenues. Operating revenues of $9.913 billion, however, edged past the Zacks Consensus Estimate of $9.899 billion. UAL has a VGM score of ‘A.’
Low cost carrier Southwest Airlines Co. (LUV - Free Report) came up with a beat on both lines for the third quarter. The carrier’s earnings (on an adjusted basis) of $0.93 per share beat the Zacks Consensus Estimate of $0.88. Revenues of $5.139 billion edged past the Zacks Consensus Estimate of $5.132 billion and increased 3.4% year over year. LUV has a VGM score of ‘A.’
Alaska Air Group Inc. (ALK - Free Report) reported third-quarter 2016 earnings per share of $2.20, which surpassed the Zacks Consensus Estimate of $2.05 and increased 2% year over year. Quarterly revenues of $1.57 billion increased 4% year over year and beat the Zacks Consensus Estimate of $1.55 billion. ALK has a VGM score of ‘B.’
American Airlines Group Inc.’s (AAL - Free Report) third-quarter adjusted earnings per share of $2.80 breezed past the Zacks Consensus Estimate by $1.68. Quarterly earnings nudged up over 1% year over year. American Airlines’ operating revenues of $10.594 billion declined 1.1% from the year-ago quarter. Quarterly revenues however beat the Zacks Consensus Estimate of $10.549 billion. AAL has a VGM score of ‘A.’
Low-cost carrier JetBlue Airways Corporation’s (JBLU - Free Report) third-quarter 2016 earnings (excluding special items) of $0.58 per share missed the Zacks Consensus Estimate of $0.60. Total operating revenue inched up 2.6% year over year to $1.732 billion and beat the Zacks Consensus Estimate of $1.718 billion. JBLU has a VGM score of ‘A.’
Should You Buy JETS?
Understand from the beat ratios that the corporate strength in the airlines industry is not as bleak as the stock trend is showing. Plus, most of the airlines are restraining the capacity growth, which should improve unit revenues.
However, with Britain preparing for the Brexit process, there could be a significant fall in the “number of people flying in and out of the UK,” as per the source. Also, oil prices play a crucial role in the airlines’ cost structure. If oil prices manage to see an uptrend in the coming days on the possible OPEC output curb deal, airlines may suffer on profit margins (read: What Do Q3 Earnings Say About Oil Service ETFs?).
In any case, oil prices remained higher than the year-ago level. Fuel price (economic) was $2.02 per gallon in Q3 for Southwest Airlines against $2.20 a year ago. The company projected fuel costs (economic) at $2.10 per gallon for 4Q (read: If Oil Continues to Soar, These 7 ETFs May Fall).
Nevertheless, investors having a strong stomach for risks and seeking to play the sector on decent earnings, may target it in the ETF form. Below we highlight the fund in detail:
JETS in Focus
The $44.7 million-fund holds over 33 stocks in its portfolio and is concentrated on a few individual securities. Delta Airlines (12.47%), American Airlines (12.08%), United Continental (11.93%) and Southwest Airlines (11.88%) are the top four elements in the basket. Alaska Air holds the seventh position in the fund with 3.92% weight.
The product charges 60 bps in fees. The fund gained about 2.3% in the last 10 trading sessions (as of October 31, 2016) which saw the peak of airlines earnings’ releases.
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Brexit or Earnings: What Will Decide the Route Map for Airline ETF?
The pure-play aviation ETF U.S. Global Jets ETF (JETS - Free Report) has been flying low this year, having lost about 3.7% (as of October 31, 2016). The Brexit decision, the volatility in currencies, terror attacks and global growth concerns have been weighing on airline stocks. The sector is in the bottom 9% of the Zacks Industry Rank at the time of this writing, giving bearish signals for the entire industry (see all industrial ETFs here).
Against such a backdrop, let’s take a look at some of the key third-quarter 2016 earnings in the sector:
Q3 Results in Detail
Delta Air Lines Inc. (DAL - Free Report) unveiled the third-quarter earnings season in the airline space with a bottom-line beat and top-line miss. Operating revenues of $10.483 billion were marginally short of the Zacks Consensus Estimate of $10.595 billion and 6% lower than the year-ago figure. The carrier’s earnings (excluding special items) of $1.70 per share beat the Zacks Consensus Estimate by 5 cents. Earnings, however, fell 2.3% on a year-over-year basis. DAL has a VGM score of ‘B.’
United Continental Holdings (UAL - Free Report) posted an earnings beat in the third quarter. Earnings (on an adjusted basis) of $3.11 per share beat the Zacks Consensus Estimate by 6 cents. Earnings, however, declined 31.4% on a year-over-year basis, owing to lower revenues. Operating revenues of $9.913 billion, however, edged past the Zacks Consensus Estimate of $9.899 billion. UAL has a VGM score of ‘A.’
Low cost carrier Southwest Airlines Co. (LUV - Free Report) came up with a beat on both lines for the third quarter. The carrier’s earnings (on an adjusted basis) of $0.93 per share beat the Zacks Consensus Estimate of $0.88. Revenues of $5.139 billion edged past the Zacks Consensus Estimate of $5.132 billion and increased 3.4% year over year. LUV has a VGM score of ‘A.’
Alaska Air Group Inc. (ALK - Free Report) reported third-quarter 2016 earnings per share of $2.20, which surpassed the Zacks Consensus Estimate of $2.05 and increased 2% year over year. Quarterly revenues of $1.57 billion increased 4% year over year and beat the Zacks Consensus Estimate of $1.55 billion. ALK has a VGM score of ‘B.’
American Airlines Group Inc.’s (AAL - Free Report) third-quarter adjusted earnings per share of $2.80 breezed past the Zacks Consensus Estimate by $1.68. Quarterly earnings nudged up over 1% year over year. American Airlines’ operating revenues of $10.594 billion declined 1.1% from the year-ago quarter. Quarterly revenues however beat the Zacks Consensus Estimate of $10.549 billion. AAL has a VGM score of ‘A.’
Low-cost carrier JetBlue Airways Corporation’s (JBLU - Free Report) third-quarter 2016 earnings (excluding special items) of $0.58 per share missed the Zacks Consensus Estimate of $0.60. Total operating revenue inched up 2.6% year over year to $1.732 billion and beat the Zacks Consensus Estimate of $1.718 billion. JBLU has a VGM score of ‘A.’
Should You Buy JETS?
Understand from the beat ratios that the corporate strength in the airlines industry is not as bleak as the stock trend is showing. Plus, most of the airlines are restraining the capacity growth, which should improve unit revenues.
However, with Britain preparing for the Brexit process, there could be a significant fall in the “number of people flying in and out of the UK,” as per the source. Also, oil prices play a crucial role in the airlines’ cost structure. If oil prices manage to see an uptrend in the coming days on the possible OPEC output curb deal, airlines may suffer on profit margins (read: What Do Q3 Earnings Say About Oil Service ETFs?).
In any case, oil prices remained higher than the year-ago level. Fuel price (economic) was $2.02 per gallon in Q3 for Southwest Airlines against $2.20 a year ago. The company projected fuel costs (economic) at $2.10 per gallon for 4Q (read: If Oil Continues to Soar, These 7 ETFs May Fall).
Nevertheless, investors having a strong stomach for risks and seeking to play the sector on decent earnings, may target it in the ETF form. Below we highlight the fund in detail:
JETS in Focus
The $44.7 million-fund holds over 33 stocks in its portfolio and is concentrated on a few individual securities. Delta Airlines (12.47%), American Airlines (12.08%), United Continental (11.93%) and Southwest Airlines (11.88%) are the top four elements in the basket. Alaska Air holds the seventh position in the fund with 3.92% weight.
The product charges 60 bps in fees. The fund gained about 2.3% in the last 10 trading sessions (as of October 31, 2016) which saw the peak of airlines earnings’ releases.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>