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4 Airline Stocks that Outperformed the Industry in May
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It is a well-documented fact that the airline stocks reported mixed results in the first quarter of 2017. Even though a fair share of sector participants came out with better-than-expected earnings per share, bottom-line growth was negligible due to high costs. Moreover, with many airline players inking labor deals, it was of no surprise that the surge in labor costs hurt the bottom line.
Bulk of the reports was out in the month of April. Apart from the mediocre earnings performance, many airline stocks led by United Continental Holdings (UAL - Free Report) encountered serious customer related issues. Notably, these factors led to the Zacks categorized Transportation- Airline industry’s gain of a mere 2.6% in April.
Improved Performance in May
Despite disappointing performance in April, airline stocks gained significantly in May on the back of several positive factors.
Bullish Unit Revenue Forecasts
It is no secret that stocks in the airline space had been hurt by unit revenue issues. However, things on that front have been improving lately. The month of May also saw bullish updates on this closely watched measure.
While announcing its April traffic report last month, American Airlines Group (AAL - Free Report) raised its views on total revenue per available seat mile (TRASM: a key measure of unit revenues) for the second quarter of 2017. TRASM is projected to increase in the band of 3.5% to 5.5% on a year-over-year basis (old guidance had hinted at growth in 3% to 5% range).
Low-cost carrier JetBlue Airways Corp. (JBLU - Free Report) followed suit and raised its second quarter forecast for the metric. The carrier expects revenue per available seat mile (RASM) for the second quarter of 2017 to grow in the band of 4–6% (the previous guidance hinted at year-over-year growth in the band of 3–6% for the same period).
The good news does not end there, because this Zacks Rank #3 (Hold) carrier also added that the outlook on RASM for the third quarter has substantially improved since the first-quarter conference call in April.
Investor-Friendly Measures
The month of May also saw airline heavyweights like Delta Air Lines (DAL - Free Report) and Southwest Airlines (LUV - Free Report) hiking their respective quarterly dividend payouts apart from announcing fresh buyback plans.
Delta raised its quarterly dividend to 30.5 cents per share (annualized $1.22 per share), representing an increase of 50.6% over the previous payout of 20.25 cents per share (annualized 81 cents per share). Additionally, the Atlanta, GA-based carrier’s board of directors cleared a new $5 billion share buyback program. The new share repurchase plan is expected to be completed by June 2020.
Close on the heels of Delta’s quarterly dividend hike, the Dallas, TX-based Southwest Airlines announced a dividend raise along with a new share repurchase program worth $2 billion.
In fact, this low-cost carrier raised its cash quarterly dividend to 12.5 cents per share (50 cents per share annualized), representing an increase of 25% over the previous quarterly payout of 10 cents per share (40 cents per share annualized).
A4A’s Bullish View
The bullish view of Airlines for America (“A4A”) – the largest airline trade association in the U.S. – regarding air travel for the summer season was another positive incident to have taken place in May.
The organization has predicted that the three-month period (Jun1- Aug 31) will be the busiest for U.S. carriers in terms of air travel. Strong demand for travel on the back of an improving economy is expected to drive passenger volumes to an all-time high.
Moreover, the volume (234.1 million) is likely to be 4% higher than the year-ago figure. We also note that the air travel projection for the summer season translates into 2.54 million fliers per day, during the said period. Apart from an improving economy, consumer confidence remains strong resulting in more Americans taking vacations (Read More: U.S. Carriers Likely to Have Busiest Summer, Says A4A).
Other Tailwinds
Late last month, members of OPEC and some non-OPEC producers announced their decision to extend the current level of production cut until the first quarter of 2018. The decision disappointed investors leading to a drop in oil prices below the $50 a barrel mark. This boosted airline stocks as lower oil prices mean good news for airline stocks.
Moreover, in the same month it was revealed that Warren Buffett, founder and CEO of Berkshire Hathaway, increased his stakes in American Airlines and Southwest Airlines in the first quarter of 2017 by 8% and 10%, respectively. We believe that as Buffett is one of the most revered investors of all times, his continued efforts to root for airline stocks is a major positive for the sector.
Stocks that Outshined the Industry
In view of the above positives it is of little wonder that the Zacks Transportation-Airline industry doubled its gain in May compared with the level in April. However, there are certain players in the space who performed even better.
We note that with a plethora of stocks present in the airline space, it is by no means an easy task for investors to pinpoint potential outperformers. This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
Ryanair Holdings plc (RYAAY - Free Report) is an Irish low-fare airliner that primarily operates from Europe. The carrier sports a Zacks Rank #1. The stock has rallied 16.2% in May outperforming the Zacks Transportation-Airline industry’s gain of 5.3%.
Deutsche Lufthansa Aktiengesellschaft (DLAKY - Free Report) operates as an aviation company in Germany and internationally. It operates through Passenger Airline Group, Logistics, MRO and Catering segments. Deutsche Lufthansa sports a Zacks Rank #1 and has gained 12.3% in May.
United Continental based in Chicagois the holding company for both United Airlines and Continental Airlines. The company, carrying a Zacks Rank #2, operates an average of nearly 5,000 flights a day to multiple destinations. The stock has gained 13.4% in May.
Southwest Airlines, a passenger airline that provides scheduled air transportation in the US, is our next choice in our list of outperformers. The company carries a Zacks Rank #2 and has gained 6.8% in May.
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Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy, according to Zacks research.
Image: Bigstock
4 Airline Stocks that Outperformed the Industry in May
It is a well-documented fact that the airline stocks reported mixed results in the first quarter of 2017. Even though a fair share of sector participants came out with better-than-expected earnings per share, bottom-line growth was negligible due to high costs. Moreover, with many airline players inking labor deals, it was of no surprise that the surge in labor costs hurt the bottom line.
Bulk of the reports was out in the month of April. Apart from the mediocre earnings performance, many airline stocks led by United Continental Holdings (UAL - Free Report) encountered serious customer related issues. Notably, these factors led to the Zacks categorized Transportation- Airline industry’s gain of a mere 2.6% in April.
Improved Performance in May
Despite disappointing performance in April, airline stocks gained significantly in May on the back of several positive factors.
Bullish Unit Revenue Forecasts
It is no secret that stocks in the airline space had been hurt by unit revenue issues. However, things on that front have been improving lately. The month of May also saw bullish updates on this closely watched measure.
While announcing its April traffic report last month, American Airlines Group (AAL - Free Report) raised its views on total revenue per available seat mile (TRASM: a key measure of unit revenues) for the second quarter of 2017. TRASM is projected to increase in the band of 3.5% to 5.5% on a year-over-year basis (old guidance had hinted at growth in 3% to 5% range).
Low-cost carrier JetBlue Airways Corp. (JBLU - Free Report) followed suit and raised its second quarter forecast for the metric. The carrier expects revenue per available seat mile (RASM) for the second quarter of 2017 to grow in the band of 4–6% (the previous guidance hinted at year-over-year growth in the band of 3–6% for the same period).
The good news does not end there, because this Zacks Rank #3 (Hold) carrier also added that the outlook on RASM for the third quarter has substantially improved since the first-quarter conference call in April.
Investor-Friendly Measures
The month of May also saw airline heavyweights like Delta Air Lines (DAL - Free Report) and Southwest Airlines (LUV - Free Report) hiking their respective quarterly dividend payouts apart from announcing fresh buyback plans.
Delta raised its quarterly dividend to 30.5 cents per share (annualized $1.22 per share), representing an increase of 50.6% over the previous payout of 20.25 cents per share (annualized 81 cents per share). Additionally, the Atlanta, GA-based carrier’s board of directors cleared a new $5 billion share buyback program. The new share repurchase plan is expected to be completed by June 2020.
Close on the heels of Delta’s quarterly dividend hike, the Dallas, TX-based Southwest Airlines announced a dividend raise along with a new share repurchase program worth $2 billion.
In fact, this low-cost carrier raised its cash quarterly dividend to 12.5 cents per share (50 cents per share annualized), representing an increase of 25% over the previous quarterly payout of 10 cents per share (40 cents per share annualized).
A4A’s Bullish View
The bullish view of Airlines for America (“A4A”) – the largest airline trade association in the U.S. – regarding air travel for the summer season was another positive incident to have taken place in May.
The organization has predicted that the three-month period (Jun1- Aug 31) will be the busiest for U.S. carriers in terms of air travel. Strong demand for travel on the back of an improving economy is expected to drive passenger volumes to an all-time high.
Moreover, the volume (234.1 million) is likely to be 4% higher than the year-ago figure. We also note that the air travel projection for the summer season translates into 2.54 million fliers per day, during the said period. Apart from an improving economy, consumer confidence remains strong resulting in more Americans taking vacations (Read More: U.S. Carriers Likely to Have Busiest Summer, Says A4A).
Other Tailwinds
Late last month, members of OPEC and some non-OPEC producers announced their decision to extend the current level of production cut until the first quarter of 2018. The decision disappointed investors leading to a drop in oil prices below the $50 a barrel mark. This boosted airline stocks as lower oil prices mean good news for airline stocks.
Moreover, in the same month it was revealed that Warren Buffett, founder and CEO of Berkshire Hathaway, increased his stakes in American Airlines and Southwest Airlines in the first quarter of 2017 by 8% and 10%, respectively. We believe that as Buffett is one of the most revered investors of all times, his continued efforts to root for airline stocks is a major positive for the sector.
Stocks that Outshined the Industry
In view of the above positives it is of little wonder that the Zacks Transportation-Airline industry doubled its gain in May compared with the level in April. However, there are certain players in the space who performed even better.
We note that with a plethora of stocks present in the airline space, it is by no means an easy task for investors to pinpoint potential outperformers. This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
To this end, we have shortlisted four companies that have outperformed the industry in May, and sport a Zacks Rank of #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
4 Solid Picks
Ryanair Holdings plc (RYAAY - Free Report) is an Irish low-fare airliner that primarily operates from Europe. The carrier sports a Zacks Rank #1. The stock has rallied 16.2% in May outperforming the Zacks Transportation-Airline industry’s gain of 5.3%.
Deutsche Lufthansa Aktiengesellschaft (DLAKY - Free Report) operates as an aviation company in Germany and internationally. It operates through Passenger Airline Group, Logistics, MRO and Catering segments. Deutsche Lufthansa sports a Zacks Rank #1 and has gained 12.3% in May.
United Continental based in Chicagois the holding company for both United Airlines and Continental Airlines. The company, carrying a Zacks Rank #2, operates an average of nearly 5,000 flights a day to multiple destinations. The stock has gained 13.4% in May.
Southwest Airlines, a passenger airline that provides scheduled air transportation in the US, is our next choice in our list of outperformers. The company carries a Zacks Rank #2 and has gained 6.8% in May.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy, according to Zacks research.
It's not the one you think.
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