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Airline ETF Flies Low on Mixed Q1: A Good Entry Point?
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Airlines companies reported Q1 earnings in the last 20 days, which came in mixed. The pure-play aviation ETF U.S. Global Jets ETF (JETS - Free Report) did not show any improvement in this time frame. Let’s take a look at some of the key first-quarter 2018 earnings results in the industry and see if the fund can attain altitude ahead.
Q1 Results in Detail
On Apr 12, Delta Air Lines Inc. (DAL - Free Report) kicked off the first-quarter earnings season in the airline space, with in-line earnings and a top-line beat. Its first-quarter 2018, earnings per share (excluding 3 cents from non-recurring items) of 74 cents beat the Zacks Consensus Estimate of 73 cents. Earnings however decreased 3.9% on a year-over-year basis. Operating revenues of $9,968 million also surpassed the Zacks Consensus Estimate of $9,881.2 million. Also, it compared favorably with the year-ago number of $9,148 million.
In mid-April, United Continental Holdings (UAL - Free Report) reported better-than-expected results in the first quarter of 2018. The company’s earnings (excluding 2 cents from non-recurring items) of 50 cents surpassed the Zacks Consensus Estimate of 49 cents. Moreover, the bottom line climbed 25% year over year owing to higher revenues. Operating revenues of $9,032 million in the first quarter also came in ahead of the Zacks Consensus Estimate of $9,012.5 million and increased 7.3% year over year. Strong demand for air travel boosted revenues.
Low-cost carrier Southwest Airlines Co.’s (LUV - Free Report) first-quarter 2018 earnings per share (excluding 4 cents from non-recurring items) of 75 cents came in line with the Zacks Consensus Estimate. Operating revenues of $4,944 million lagged the Zacks Consensus Estimate of $5,017.6 million. However, the company’s Q2 guidance was bleak.
American Airlines Group Inc.’s (AAL - Free Report) first-quarter 2018 earnings (excluding 36 cents from non-recurring items) of 75 cents per share surpassed the Zacks Consensus Estimate by a penny. Quarterly earnings increased approximately 23% on a year-over-year basis despite higher costs. Revenues of $10,401 million fell short of the Zacks Consensus Estimate of $10,411.9 million. Strong demand for air travel led to the year-over-year improvement in the top line.
Low-cost carrier JetBlue Airways Corporation’s (JBLU - Free Report) first-quarter 2018 earnings per share of 27 cents surpassed the Zacks Consensus Estimate of 22 cents. The bottom line also increased 8% year over year backed by higher passenger revenues. However, total operating revenues of $1,754 million fell short of the Zacks Consensus Estimate of $1,757.6 million. Nevertheless, the top line increased more than 9% from the year-ago figure.
Alaska Air Group Inc. (ALK - Free Report) reported first-quarter 2018 earnings (excluding 11 cents from non-recurring items) of 14 cents, surpassing the Zacks Consensus Estimate by 3 cents. However, the bottom line declined 86.7% on a year-over-year basis due to high costs. Revenues came in at $1,832 million, marginally above the Zacks Consensus Estimate of $1,830.6 million. The top line improved 5% year over year.
Should You Buy JETS on the Dip?
By now, one must have understood from the beat ratios that the fundamentals are mixed. Oil prices play a crucial role in the airlines’ cost structure. If oil prices manage to see an uptrend in the coming days on the extension of the OPEC output curb deal, airlines may suffer on profit margins. Rising geopolitical risks related to trade war and chaos in Middle East are the other threats (read: Top Performing Energy ETFs of 2018).
Nevertheless, investors having a strong stomach for oil-related risks, faith in the compelling valuation of airline stocks and seeking to play the sector on the expected benefit of the tax reform and “pricing discipline (per Bernstein)”, may target it in the ETF form. Below we highlight the fund in detail:
JETS in Focus
The $99.3 million-fund holds more than 33 securities in its portfolio and is concentrated on a few individual securities. United Continental (12.54%), Delta Airlines (12.00%), Southwest Airlines (11.53%) and American Airlines (10.51%) are the top four elements in the basket. Alaska Air Group and JetBlue hold the sixth and ninth positions in the fund with 4.38% and 3.97% weights, respectively. The product charges 60 bps in fees. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook (see all industrials ETFs here).
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Airline ETF Flies Low on Mixed Q1: A Good Entry Point?
Airlines companies reported Q1 earnings in the last 20 days, which came in mixed. The pure-play aviation ETF U.S. Global Jets ETF (JETS - Free Report) did not show any improvement in this time frame. Let’s take a look at some of the key first-quarter 2018 earnings results in the industry and see if the fund can attain altitude ahead.
Q1 Results in Detail
On Apr 12, Delta Air Lines Inc. (DAL - Free Report) kicked off the first-quarter earnings season in the airline space, with in-line earnings and a top-line beat. Its first-quarter 2018, earnings per share (excluding 3 cents from non-recurring items) of 74 cents beat the Zacks Consensus Estimate of 73 cents. Earnings however decreased 3.9% on a year-over-year basis. Operating revenues of $9,968 million also surpassed the Zacks Consensus Estimate of $9,881.2 million. Also, it compared favorably with the year-ago number of $9,148 million.
In mid-April, United Continental Holdings (UAL - Free Report) reported better-than-expected results in the first quarter of 2018. The company’s earnings (excluding 2 cents from non-recurring items) of 50 cents surpassed the Zacks Consensus Estimate of 49 cents. Moreover, the bottom line climbed 25% year over year owing to higher revenues. Operating revenues of $9,032 million in the first quarter also came in ahead of the Zacks Consensus Estimate of $9,012.5 million and increased 7.3% year over year. Strong demand for air travel boosted revenues.
Low-cost carrier Southwest Airlines Co.’s (LUV - Free Report) first-quarter 2018 earnings per share (excluding 4 cents from non-recurring items) of 75 cents came in line with the Zacks Consensus Estimate. Operating revenues of $4,944 million lagged the Zacks Consensus Estimate of $5,017.6 million. However, the company’s Q2 guidance was bleak.
American Airlines Group Inc.’s (AAL - Free Report) first-quarter 2018 earnings (excluding 36 cents from non-recurring items) of 75 cents per share surpassed the Zacks Consensus Estimate by a penny. Quarterly earnings increased approximately 23% on a year-over-year basis despite higher costs. Revenues of $10,401 million fell short of the Zacks Consensus Estimate of $10,411.9 million. Strong demand for air travel led to the year-over-year improvement in the top line.
Low-cost carrier JetBlue Airways Corporation’s (JBLU - Free Report) first-quarter 2018 earnings per share of 27 cents surpassed the Zacks Consensus Estimate of 22 cents. The bottom line also increased 8% year over year backed by higher passenger revenues. However, total operating revenues of $1,754 million fell short of the Zacks Consensus Estimate of $1,757.6 million. Nevertheless, the top line increased more than 9% from the year-ago figure.
Alaska Air Group Inc. (ALK - Free Report) reported first-quarter 2018 earnings (excluding 11 cents from non-recurring items) of 14 cents, surpassing the Zacks Consensus Estimate by 3 cents. However, the bottom line declined 86.7% on a year-over-year basis due to high costs. Revenues came in at $1,832 million, marginally above the Zacks Consensus Estimate of $1,830.6 million. The top line improved 5% year over year.
Should You Buy JETS on the Dip?
By now, one must have understood from the beat ratios that the fundamentals are mixed. Oil prices play a crucial role in the airlines’ cost structure. If oil prices manage to see an uptrend in the coming days on the extension of the OPEC output curb deal, airlines may suffer on profit margins. Rising geopolitical risks related to trade war and chaos in Middle East are the other threats (read: Top Performing Energy ETFs of 2018).
Nevertheless, investors having a strong stomach for oil-related risks, faith in the compelling valuation of airline stocks and seeking to play the sector on the expected benefit of the tax reform and “pricing discipline (per Bernstein)”, may target it in the ETF form. Below we highlight the fund in detail:
JETS in Focus
The $99.3 million-fund holds more than 33 securities in its portfolio and is concentrated on a few individual securities. United Continental (12.54%), Delta Airlines (12.00%), Southwest Airlines (11.53%) and American Airlines (10.51%) are the top four elements in the basket. Alaska Air Group and JetBlue hold the sixth and ninth positions in the fund with 4.38% and 3.97% weights, respectively. The product charges 60 bps in fees. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook (see all industrials ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>