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The Zacks Analyst Blog Highlights: United Continental, Spirit Airlines, Delta Air Lines, Southwest Airlines and Alaska Air

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For Immediate Release

Chicago, IL – September 25, 2017 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog includeUnited Continental Holdings(NYSE: (UAL - Free Report) – Free Report), Spirit Airlines (Nasdaq: (SAVE - Free Report) – Free Report), Delta Air Lines (NYSE: (DAL - Free Report) – Free Report), Southwest Airlines Co. (NYSE: (LUV - Free Report) – Free Report) and Alaska Air Group, Inc. (NYSE: (ALK - Free Report) – Free Report).

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Here are highlights from Friday’s Analyst Blog:

Turbulent Q3 Awaits Airlines? 4 Stocks to Sell Ahead of Earnings

Stocks in the airline space have been going through tough times of late. Major airline companies are severely hurt from the consecutive impacts of Harvey and Irma. Consequently airline stocks have lowered their guidance for the upcoming quarter.

The airline companies are expected to reveal third-quarter 2017 earnings numbers next month. With the tropical storms bearing heavily on the airline companies, the scenario for future looks very grim.

Bleak Third-Quarter Forecasts

Several airline companies have trimmed their third-quarter outlook, primarily due to natural disasters.

United Continental Holdings (NYSE: UALFree Report), the parent company of United Airlines, the worst hit from Harvey has reduced views with respect to pre-tax margin and passenger revenue per available seat mile (PRASM: a key measure of unit revenue) for the current quarter. The carrier now expects PRASM to decline between 3% and 5% year over year (the earlier guidance provided in July had called for the metric to be in the range of +1% to -1%).

The carrier currently expects pre-tax margin between 8% and 10% (previous outlook had called for the metric to be in the range of 12.5-14.5%). Higher fuel prices are also estimated to hamper the bottom line in the third quarter. Fuel price per gallon is now projected in the band of $1.72-$1.77 (earlier view: $1.56-$1.61). Cost per available seat miles, excluding fuel, profit-sharing, third-party business expenses and other special items are now projected to increase between 2.5% and 3.5% (earlier outlook had called for a rise in the 2-3% range).

The Chicago-based company now expects capacity to grow between 3% and 3.5% compared with the approximate 4% expansion projected earlier.

Spirit Airlines (Nasdaq: SAVEFree Report) with significant exposure to Houston expects the top line to shrink to the tune of approximately $8.5 million in the third quarter due to natural calamity. Currently, Spirit Airlines anticipates total revenue per available seat mile (TRASM: a key measure of unit revenue) in the current quarter to fall between 7% and 8.5% (the earlier guidance had called for a drop in the band of 2-4%). Aggressive competitive pricing in key markets also contributed to this bleak forecast.

Delta Air Lines (NYSE: DALFree Report) also trimmed outlook for the third quarter due to stiffer competition and higher fuel costs. The carrier now estimates passenger unit revenue for the said quarter to improve in the range of 2-3%. Past view had called for growth in the 2.5-4.5% band. The airline also raised outlook for fuel prices to $1.68-$1.73 from the earlier $1.55-$1.60 bracket on the back of upsurge in market price, which began in late July.

Apart from the above carriers, the likes of Southwest Airlines Co. (NYSE: LUVFree Report), among others, also cut their respective unit revenue views for the third quarter.

High Labor Costs

Steep labor costs have been hitting the airline stocks for quite some time now. In fact, the future scenario also seems dull and the metric is expected to affect the third-quarter results as well.

Zacks Industry Rank Highlights the Drab Scenario

The Zacks Industry Rank of 202 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the plight of the airlines. This unfavorable rank places the companies in the bottom 21% of the Zacks industries.

We classify our entire 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

Over the past decade, using a week’s rebalance, the top half beat the bottom half by a factor of more than 2 to 1.

Click here to know more: About Zacks Industry Rank

Price Performance

The dim outlook of the airlines is evident from the fact that the Zacks Airline Industry has underperformed the broader market in the last three months. While the S&P 500 index has gained 2.4%, the industry has declined 4.2%.

4 Airline Stocks to Dump Now

Keeping the above-mentioned headwinds in view, we have zeroed in on four stocks for investors to offload from their respective portfolios.

Spirit Airlines, Inc. operates an airline based in Fort Lauderdale, providing travel opportunity principally to and from South Florida, the Caribbean as well as Latin America. The company based in Miramar, FL currently carries a Zacks Rank #5 (Strong Sell) and has a Momentum Score of F, highlighting its short-term lack of appeal. The earnings per share growth rate of the company for the next five years is 8%, which compares unfavorably with the industry’s 9.1%.

The stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 17.6% downward in the last 30 days.

Alaska Air Group, Inc. (NYSE: ALKFree Report) is a holding company of primarily Alaska Airlines, Virgin America and Horizon Air Industries. The company based in SeaTac, WA carries a Zacks Rank #5 and a Momentum Score of D. The earnings per share growth rate of the company for the next five years is 6.3% and the reading is much below the industry’s 9.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for current-quarter earnings has been revised 2.4% downward over the last 30 days.

United Continental Holdings, Inc. is the holding company for United Airlines and Continental Airlines. The company based in Chicago, IL carries a Zacks Rank #5 and a Momentum Score of F. The coming five years’ earnings per share growth rate of the company is 6.1%, lagging the industry’s reading of 9.1%.

The Zacks Consensus Estimate for current-quarter earnings has been revised 32.4% downward in the last 30 days.

Delta Air Lines, Inc. is a leading international carrier in America. The company headquartered in Atlanta, GA carries a Zacks Rank #5 and a Momentum Score of F. The company’s earnings per share growth rate for the next five years is 7.6%, falling short of the industry’s 9.1% figure.

The Zacks Consensus Estimate for current-quarter earnings has been revised 11.1% downward in the past 30 days.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit information about the performance numbers displayed in this press release.

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