It hasnt been a great time to be in the airline business as investors continue to worry about terrorism and Zika. Many anticipate that both of these
issues will hit airline stocks hard, while increased competition will make dealing with any slowdown that much more difficult.
But even beyond those issues, some airline stocks need to worry about political problems too. Take Ryanair ( (RYAAY - Snapshot Report) for example. The Ireland-based airline has a significant portion of its business in the UK, as
well as flights that transit between the UK and the rest of Europe. In fact, close to a third of its traffic is done in the UK so any big changes are sure
to impact them more than others.
RYAAY in Focus
Thanks to this uncertaintyas well as the broad concerns for airlinesRYAAY has greatly underperformed markets over the past three months, losing more than
15% in the time frame. The stock has actually managed to underperform even the British ETF (EWU - ETF report)
over the past month (where Brexit should have made the biggest dent) signaling just how bad things have gotten for Ryanair, and what a big impact recent
events could have on their business model.
Analysts have also begun to move their expectations lower for RYAAY shares, as the current year and next year estimates have both come down in the past two
months. Plus, the most recent consensus estimate for the current year is roughly 3.3% lower than the full Zacks Consensus Estimate so it is clear that more
recent estimates are sharply lower.
No wonder RYAAY has recently fallen into strong sell territory and is a Zacks Rank #5 stock. This is a ranking we only give to the bottom five percent of
all stocks out there, so it isnt an area you want to be in by any means. This is especially true when earnings are coming up, as the stock has a horrific
track record when it comes to managing analyst expectations. It has missed in three of the last four reports including a nearly 17% miss in the most recent
report, so not exactly a good run for this company at earnings season.
If that wasnt enough
Investors should also note that despite a PE below 12, Ryanair has a D Grade for value, putting it into the bottom 40% of all stocks from this look. This
is largely based on its weak metrics for both P/B and P/s, while its earnings yield is also less than the industry average too.
And while RYAAY is suffering from the broad European malaise more than most, it is important to remember that the industry at large is in a bit of a rough
spot. The industry rank is in the bottom 10% overall, so there are few industries worse off from a broad Zacks Rank perspective these days.
While the space may be looking poor right now, there is actually a bit of hope left. In fact, of the 26 stocks in the group, three have ranks of #2 or
better. The lone #1 ranked stock right now is Cathay Pacific Air (CPCAY - Snapshot Report) and it was just upgraded to
strong buy territory within the last week.
Additionally, this stock has a Value Grade of A, making it the polar opposite of Ryanair on both of these crucial fronts. So, until the Brexit worries
get sorted out or until the European travel market becomes a little more favorable to investors, it seems as though investors should look to Cathay Pacific
over Ryanair for now.