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LATAM Airlines (LTM) Stock Down 29% Year to Date: Here's Why
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Shares of LATAM Airlines Group S.A. have lost 29.4% of their value so far this year compared with the Zacks Airline industry’s 11.1% decline.
YTD Price Performance
Let’s take a look into the factors responsible for the dismal price performance.
LATAM Airlines Group, like other airline companies, has been hit hard by surge in oil prices. In fact, oil prices have increased roughly 15% on a year-to-date basis.
It is a well-documented fact that the health of airline stocks is inversely related to oil prices. This is because fuel costs represent one of the most significant expenses for carriers. Naturally, rise in oil prices results in significant increase in operating expenses of carriers, thus limiting bottom-line growth. For 2018, LATAM Airlines Group expects oil price to be approximately $85 per gallon compared with $73 per gallon expected earlier.
Currency devaluation in certain Latin American economies also remains an added concern for LATAM Airlines Group besides prevailing political uncertainties. For the current year, the company lowered its outlook for operating margin due to softness in yield from the weakening currency. It now anticipates the metric in the band of 6.5-8%, down from 7.5-9.5% expected earlier. Unit revenues are too expected to remain low in the year.
Moreover, due to industry delays and other headwinds, the company reconsidered its plans pertaining to fleet size. The company expects fleet size of 312 and 320 jets for 2018 and 2019, respectively. The earlier projections for fleet size for the current and next year was 318 and 324, respectively.
Additionally, load factor (percentage of seats filled by passengers) has decreased 1.2 percentage points to 83.3% on a year-to-date basis at this Santiago, Chile-based carrier as capacity expansion (4.1%) exceeded traffic growth (2.5%). We note that capacity related woes had hurt the entire airline space in the recent past.
With capacity expansion outweighing traffic growth at LATAM Airlines Group so far this year, capacity woes might resurface.
Other Unfavorable Readings
The Zacks Consensus Estimate for third-quarter and full-year 2018 earnings moved south 12.2% and 18%, respectively, over the last 60 days. The unfavorable earnings estimate revisions are reflective of investors’ pessimism surrounding the stock.
Furthermore, the company’s Momentum Score of D highlights its short-term unattractiveness. Undoubtedly, the above negatives substantiate the company’s Zacks Rank #4 (Sell).
Shares of Norfolk Southern, SkyWest and Old Dominion have gained 35.3%, 5.8% and 6.1%, respectively, in the past six months.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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LATAM Airlines (LTM) Stock Down 29% Year to Date: Here's Why
Shares of LATAM Airlines Group S.A. have lost 29.4% of their value so far this year compared with the Zacks Airline industry’s 11.1% decline.
YTD Price Performance
Let’s take a look into the factors responsible for the dismal price performance.
LATAM Airlines Group, like other airline companies, has been hit hard by surge in oil prices. In fact, oil prices have increased roughly 15% on a year-to-date basis.
It is a well-documented fact that the health of airline stocks is inversely related to oil prices. This is because fuel costs represent one of the most significant expenses for carriers. Naturally, rise in oil prices results in significant increase in operating expenses of carriers, thus limiting bottom-line growth. For 2018, LATAM Airlines Group expects oil price to be approximately $85 per gallon compared with $73 per gallon expected earlier.
Currency devaluation in certain Latin American economies also remains an added concern for LATAM Airlines Group besides prevailing political uncertainties. For the current year, the company lowered its outlook for operating margin due to softness in yield from the weakening currency. It now anticipates the metric in the band of 6.5-8%, down from 7.5-9.5% expected earlier. Unit revenues are too expected to remain low in the year.
Moreover, due to industry delays and other headwinds, the company reconsidered its plans pertaining to fleet size. The company expects fleet size of 312 and 320 jets for 2018 and 2019, respectively. The earlier projections for fleet size for the current and next year was 318 and 324, respectively.
Additionally, load factor (percentage of seats filled by passengers) has decreased 1.2 percentage points to 83.3% on a year-to-date basis at this Santiago, Chile-based carrier as capacity expansion (4.1%) exceeded traffic growth (2.5%). We note that capacity related woes had hurt the entire airline space in the recent past.
With capacity expansion outweighing traffic growth at LATAM Airlines Group so far this year, capacity woes might resurface.
Other Unfavorable Readings
The Zacks Consensus Estimate for third-quarter and full-year 2018 earnings moved south 12.2% and 18%, respectively, over the last 60 days. The unfavorable earnings estimate revisions are reflective of investors’ pessimism surrounding the stock.
Furthermore, the company’s Momentum Score of D highlights its short-term unattractiveness. Undoubtedly, the above negatives substantiate the company’s Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader Transportation Sector are Norfolk Southern Corporation (NSC - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Old Dominion Freight Line, Inc. (ODFL - Free Report) . While Norfolk Southern and Old Dominion carry a Zacks Rank #2 (Buy), SkyWest sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Norfolk Southern, SkyWest and Old Dominion have gained 35.3%, 5.8% and 6.1%, respectively, in the past six months.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>