For Immediate Release

Chicago, IL – April 14, 2023 – Zacks Equity Research shares American Airlines (AAL Quick QuoteAAL - Free Report) as the Bull of the Day and Hertz Global (HTZ Quick QuoteHTZ - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on NOW Inc. (DNOW Quick QuoteDNOW - Free Report) , Par Pacific Holdings (PARR Quick QuotePARR - Free Report) and Sunoco LP (SUN Quick QuoteSUN - Free Report) .

Here is a synopsis of all five stocks:

Bull of the Day:

The risk to reward is becoming favorable for American Airlines stock, which currently sports a Zacks Rank #1 (Strong Buy). Furthermore, the Zacks Transportation-Airline Industry is in the top 13% of over 250 Zacks industries at the moment.  

Peak Travel Season

Edging closer to the warmer months of the year, we are entering peak travel season and this should certainly give a boost to many airlines. There is also the possibility that travel will be higher in 2023 from lingering pent-up demand following the pandemic.

In its latest data at the end of March, the U.S. Travel Associations' survey of travel spending totaled $93 billion in February which was 5% above 2019 pre-pandemic levels and 9% above 2022 levels.

Plus, the Transportation Security Administrations' (TSA) checkpoint travel numbers have seen quite a few days spike above 2019 levels so far this month and are overall higher than last year.

Earnings Estimate Revisions

In correlation with the plausibility of higher travel demand, American Airlines' earnings estimate revisions have continued to trend higher. Fiscal 2023 earnings estimates have now soared 32% over the last 90 days with FY24 EPS estimates rising 20%.

American Airlines FY23 earnings are now forecasted to rebound and skyrocket 410% at $2.55 per share compared to EPS of $0.50 in 2022. Even better, fiscal 2024 earnings are expected to climb another 24% at $3.16 per share.

On the top line, sales are projected to jump 9% this year and rise another 4% in FY24 to $55.77 billion. More importantly, fiscal 2024 would be 25% above 2019 pre-pandemic sales of $44.54 billion. This will certainly help the company's bottom line start to catch up as well.

Attractive Valuation

Along with its post-pandemic growth recovery, American Airlines' valuation may be intriguing to investors right now with Tesla CEO Elon Musk recently announcing he will purchase a 51% stake in the company.

News of Musk's majority interest in American Airlines surfaced at the beginning of the month. Although the Tesla boss jokingly stated he simply has an abundance of cash and likes buying companies with bird logos (Twitter) there is surely the factor of American Airlines price to earnings discount.

American Airlines stock trades at just 5.1X forward earnings which is nicely beneath the industry average of 11.2X and the S&P 500's 19X. Shares of AAL also trade 74% below their historical high of 21.1X since merging with U.S Airways in 2013. Plus, American Airlines stock trades at a 22% discount to its historic median of 6.9X.

Bottom Line

Now appears to be a great time to get in on American Airlines stock with earnings estimate revisions trending higher and shares still near 52-week lows at around $13 per share. The rising earnings estimates also make American Airlines P/E valuation very attractive and indicate its stock could indeed be vastly undervalued right now.

It would be no surprise if American Airlines stock begins to fly this year with the Average Zacks Price Target suggesting 37% upside from current levels.

Bear of the Day:

Hertz Global currently lands a Zacks Rank #5 (Strong Sell) with its Transportation-Services Industry in the bottom 15% of over 250 Zacks Industries. Investors may want to be cautious at the moment with Hertz not far removed from bankruptcy and facing increasing competition.

Cautionary Tale

Not that Hertz won't enjoy future success, but investors should be mindful that the company recently exited bankruptcy in July of 2021.

After filing for Chapter 11, Hertz was delisted by the New York Stock Exchange in October 2020 but was relisted on the Nasdaq in November 2021. Hertz has a long history that dates back to 1918 with the company dominating the U.S. rental car industry for many years.

However, the Covid-19 pandemic crippled the company as travel stopped and highlighted management's inability to preserve cash and an adequate balance sheet at the time. Compounding the challenges were Hertz's total liabilities which were at multi-year highs as shown in the nearby chart.

Furthermore, with CFO Kenny Cheung recently leaving the company in late March there may be cause for concern. The company stated Cheung left for another professional opportunity in a different industry and has since appointed Chief Accounting Officer Alexandra Brooks as interim CFO.

Growth & Competition

What also led to Hertz's trouble in recent years was increasing competition. After historically controlling the broader rental car industry, competitors like Avis Budget continued to expand while Hertz's shrank.

Notably, Hertz's earnings estimate revisions have started to decline following its CFO's departure while Avis EPS estimates are rising. Hertz's earnings are now forecasted to drop -39% in fiscal 2023 at $2.27 per share compared to EPS of $3.74 in 2022. More concerning, fiscal 2024 EPS is expected to decline another -18%.

Avis annual earnings are expected to experience a dip as well but the company's bottom line remains light years ahead of Hertz on top of CAR's earnings estimates soaring over the last quarter as shown in the chart below.

This is indicative of Avis continuing to take market share. For now, Hertz declining earnings estimates may somewhat be symbolic of the company's inability to stop the bleeding.

Bottom Line

Considering Hertz recently exited bankruptcy, the recent departure of its CFO may look like a red flag to many and investors will want to be cautious of HTZ stock as there could be more short-term weakness ahead.

Reconfirming this possibility is the declining earnings estimates and Hertz's fall since relisting on the Nasdaq in 2021 could continue with shares of HTZ now down -40%.

Additional content:

U.S. Oil Prices Hit 2023 High: What's Driving the Market?

U.S. oil prices moved up on Apr 12, hitting their highest level so far this year after government data showed a lower-than-expected weekly build in crude to go with the drop in gasoline and distillate supplies. On the New York Mercantile Exchange, WTI crude futures rose $1.73 (or 2.1%) to settle at $83.26 a barrel yesterday.

Other factors driving the energy market are the recently announced surprise production cut by the OPEC+ cartel, hopes for an end to interest rate hikes following encouraging inflation data and potential refill to the U.S. Strategic Petroleum Reserve ("SPR") that could drain supplies.   

Some oil-related stocks that could benefit in the current environment include NOW Inc., Par Pacific Holdings and Sunoco LP.

Before going into the overall macro environment for oil, let's dig deep into the Energy Information Administration's ("EIA") Weekly Petroleum Status Report for the holiday-shortened week ending Apr 7.

Analyzing the Latest EIA Report

Crude Oil: The federal government's EIA report revealed that crude inventories rose 597,000 barrels compared to expectations of a 700,000-barrel increase per the analysts surveyed by S&P Global Commodity Insights. The combination of lower exports, higher production and a drop in refinery demand accounted for the stockpile build with the world's biggest oil consumer.

Total domestic stocks now stand at 470.5 million barrels — 11.5% more than the year-ago figure and 3% higher than the five-year average.

However, on a slightly bullish note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) fell 409,000 barrels to 33.8 million barrels.

Meanwhile, the crude supply cover, at 30.2 days, remained unchanged from the previous week. In the year-ago period, the supply cover was 26.7 days.

Let's turn to the products now.

Gasoline: Gasoline supplies decreased for the eighth time in as many weeks. The 330,000-barrel fall was primarily attributable to lower production. Analysts had forecast that gasoline inventories would drop 900,000 barrels. At 222.2 million barrels, the current stock of the most widely used petroleum product is 4.7% less than the year-earlier level, while it is 7% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) dropped for the second week in succession. The 606,000-barrel decrease reflected lower production and a rise in exports. Meanwhile, the market looked for a supply build of some 2 million barrels. Following last week's decline, current inventories — at 112.4 million barrels — are marginally below the year-ago level (by 0.9%) and 11% lower than the five-year average.

Refinery Rates: Refinery utilization, at 89.3%, edged down 0.3% from the prior week.

Final Word

Even as fears related to high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector over the past year. The space has generated a total return of around 12.1% in the trailing 12 months compared with the S&P 500's decline of 6.9%.

Apart from a relatively constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia's military operations in Ukraine. In March 2022, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, one of the world's largest producers of the commodity.

Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters' group OPEC sticking to a conservative production profile.

While the banking sector turmoil did affect the sector temporarily, the crisis seems to have eased now. Crude also got a leg up and is now trading above $80 after U.S. Federal Reserve signaled an imminent end to interest rate increases, while the Biden Administration hinted at replenishing the SPR — a massive supply of government crude that is used in unforeseen circumstances — sometime this year.

3 Stocks to Buy

Investors interested in the energy sector might look at NOW Inc., Par Pacific Holdings and Sunoco LP. Each of the companies currently carries a Zacks Rank #1 (Strong Buy).

You can see the complete list of today's Zacks #1 Rank stocks here.

NOW Inc.: DNOW beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. NOW Inc. has a trailing four-quarter earnings surprise of 41.3%, on average.

The oilfield services provider is valued at around $1.2 billion. NOW Inc. has seen its shares edge down 0.3% in a year.

Sunoco LP: SUN beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters. Sunoco has a trailing four-quarter earnings surprise of 21.6%, on average.

Sunoco is valued at around $4.5 billion. The motor fuel distributor has seen its shares gain 5.4% in a year.

Par Pacific Holdings: Par Pacific beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The oil refining company has a trailing four-quarter earnings surprise of roughly 16.1%, on average.

Par Pacific is valued at around $1.7 billion. PARR has seen its shares surge 82.1% in a year.

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