Markets have been highly volatile in June. Recently, unfavorable events associated with terrorism, dampened market performance in the key sectors. On the other hand, the global economy hangs in the balance with the pending announcements related to the high chances of the U.K.’s exit from the Europe Union. In light of the slow economic growth, the U.S. Fed too kept rates unchanged at the meeting on Jun 15. The airline industry, in particular, is highly sensitive to global events and as expected major airline stocks such as American Airlines Group Inc. (AAL - Free Report) , United Continental Holdings Inc. (UAL - Free Report) and Delta Air Lines, Inc (DAL - Free Report) have had a hard landing. In fact, some of these stocks are trading close to their 52-week low levels. The NYSE ARCA Airline index declined 2.54% to $84.45 on Jun 14.
Terrorist Attacks
The recent shooting at an Orlando gay night club, which lead to multiple casualties, shocked everyone after the shooter claimed allegiance to an international terrorist group. Also, an explosion that injured five people at the Shanghai Pudong International Airport raised security concerns. Attacks in Brussels and Paris in the past one year have also made international travelers wary. Such acts of terrorism tend to result in people cancelling or postponing their travel plans and in turn, reduce traffic for airlines.
The Fed Rate Decision and Brexit
The U.S. Fed’s key decision-making meeting concluded with the announcement of retaining the current interest rate. The Fed decided against the rate hike given unfavorable macroeconomic indicators. It also announced that there might be two rate hikes later this year.
Another important development that is likely to have a massive impact on investors across the world is the U.K’s vote on its exit from the European Union (“EU”). The nation will cast the decision-making vote on Jun 23. Popularly termed as “Brexit”, the development is already impacting stock markets worldwide. If Brexit eventually does materialize it could have an extremely unfavorable impact on both EU and the U.K. The entire EU economy would struggle to survive, Euro could lose value and the global financial system would suffer. Airline stocks, in particular, are highly susceptible to this decision as it would affect business travel, currency values and regulations.
Positive Factors
Despite the multitude of negatives, low crude oil prices are a ray of hope for this industry. Although there are possibilities of oil prices touching the $60 per barrel mark, global macroeconomic issues are keeping prices below $50 per barrel at present. This is helping airlines to enjoy comparatively higher margins at least for now. Moreover, airline traffic growth could also pick up with events such as the Olympic Games in Rio de Janeiro and the FIFA Club World Cup lined up for the second half of 2016.
Overall, the airline industry continues to be a favorable bet and holds a Zacks Industry Rank #62 out of over 250 industries covered. While the markets stay in the red and airlines are no exception. Then again, there are some carriers with good potential which are great picks at their current value. The key factors that we look at to pick these stocks include PE multiples, earnings per share (EPS) growth, VGM score (weighted combination of Value, Growth and Momentum) along with other performance-related factors.
Our Picks
Air France-KLM (AFLYY - Free Report) is a leading global airline company based in Paris. The company is an attractive pick with a current year PE of 3.07, which is much lower than the industry PE of 18.20. EPS growth is expected to be a whopping 205% as against 100% this year. The company posted good quarterly results and is focused on reducing unit costs. Air France-KLM sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of “A”.
Cathay Pacific Airways (CPCAY - Free Report) is a Hong Kong-based airline with a strong network, especially in Asia. It has a PE of 5.70, which is much lower than the industry PE. This indicates the company’s potential for higher future returns. The company holds a Zacks Rank #1 and has a favorable VGM Score of “B”.
SkyWest Inc. (SKYW - Free Report) operated SkyWest Airlines is one of the largest domestic airlines in the U.S. The company has a PE of 9.47 and a forecasted EPS growth rate of 27.90% for 2016. This Zacks Rank # 1 stock has an impressive VGM Score of “B”. SkyWest has maintained its earnings streak over the last four quarters.
International Consolidated Airlines Group, S.A (ICAGY - Free Report) is a holding company for British Airways and Iberia. The company has a PE of 5.47 and a commendable EPS growth rate of 55.60 for the current year. With a Zacks Rank #2 (Buy) and a VGM Score “A” it is one of the favored stock picks in the industry.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Markets have been highly volatile in June. Recently, unfavorable events associated with terrorism, dampened market performance in the key sectors. On the other hand, the global economy hangs in the balance with the pending announcements related to the high chances of the U.K.’s exit from the Europe Union. In light of the slow economic growth, the U.S. Fed too kept rates unchanged at the meeting on Jun 15. The airline industry, in particular, is highly sensitive to global events and as expected major airline stocks such as American Airlines Group Inc. (AAL - Free Report) , United Continental Holdings Inc. (UAL - Free Report) and Delta Air Lines, Inc (DAL - Free Report) have had a hard landing. In fact, some of these stocks are trading close to their 52-week low levels. The NYSE ARCA Airline index declined 2.54% to $84.45 on Jun 14.
Terrorist Attacks
The recent shooting at an Orlando gay night club, which lead to multiple casualties, shocked everyone after the shooter claimed allegiance to an international terrorist group. Also, an explosion that injured five people at the Shanghai Pudong International Airport raised security concerns. Attacks in Brussels and Paris in the past one year have also made international travelers wary. Such acts of terrorism tend to result in people cancelling or postponing their travel plans and in turn, reduce traffic for airlines.
The Fed Rate Decision and Brexit
The U.S. Fed’s key decision-making meeting concluded with the announcement of retaining the current interest rate. The Fed decided against the rate hike given unfavorable macroeconomic indicators. It also announced that there might be two rate hikes later this year.
Another important development that is likely to have a massive impact on investors across the world is the U.K’s vote on its exit from the European Union (“EU”). The nation will cast the decision-making vote on Jun 23. Popularly termed as “Brexit”, the development is already impacting stock markets worldwide. If Brexit eventually does materialize it could have an extremely unfavorable impact on both EU and the U.K. The entire EU economy would struggle to survive, Euro could lose value and the global financial system would suffer. Airline stocks, in particular, are highly susceptible to this decision as it would affect business travel, currency values and regulations.
Positive Factors
Despite the multitude of negatives, low crude oil prices are a ray of hope for this industry. Although there are possibilities of oil prices touching the $60 per barrel mark, global macroeconomic issues are keeping prices below $50 per barrel at present. This is helping airlines to enjoy comparatively higher margins at least for now. Moreover, airline traffic growth could also pick up with events such as the Olympic Games in Rio de Janeiro and the FIFA Club World Cup lined up for the second half of 2016.
Overall, the airline industry continues to be a favorable bet and holds a Zacks Industry Rank #62 out of over 250 industries covered. While the markets stay in the red and airlines are no exception. Then again, there are some carriers with good potential which are great picks at their current value. The key factors that we look at to pick these stocks include PE multiples, earnings per share (EPS) growth, VGM score (weighted combination of Value, Growth and Momentum) along with other performance-related factors.
Our Picks
Air France-KLM (AFLYY - Free Report) is a leading global airline company based in Paris. The company is an attractive pick with a current year PE of 3.07, which is much lower than the industry PE of 18.20. EPS growth is expected to be a whopping 205% as against 100% this year. The company posted good quarterly results and is focused on reducing unit costs. Air France-KLM sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of “A”.
Cathay Pacific Airways (CPCAY - Free Report) is a Hong Kong-based airline with a strong network, especially in Asia. It has a PE of 5.70, which is much lower than the industry PE. This indicates the company’s potential for higher future returns. The company holds a Zacks Rank #1 and has a favorable VGM Score of “B”.
SkyWest Inc. (SKYW - Free Report) operated SkyWest Airlines is one of the largest domestic airlines in the U.S. The company has a PE of 9.47 and a forecasted EPS growth rate of 27.90% for 2016. This Zacks Rank # 1 stock has an impressive VGM Score of “B”. SkyWest has maintained its earnings streak over the last four quarters.
International Consolidated Airlines Group, S.A (ICAGY - Free Report) is a holding company for British Airways and Iberia. The company has a PE of 5.47 and a commendable EPS growth rate of 55.60 for the current year. With a Zacks Rank #2 (Buy) and a VGM Score “A” it is one of the favored stock picks in the industry.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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