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Here's Why You Must Dump Ryanair From Your Portfolio Now

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Ryanair Holdings plc (RYAAY - Free Report) has been grappling with labor unrest since the time it acknowledged trade unions last December. The problem intensified this July when it witnessed the first-ever pilot strike in its home market of Ireland over its alleged failure to meet demands regarding new working practices.

Since then, several walkouts by pilots and the cabin crew have taken place across the European countries of Spain, Belgium, Sweden, Holland, Portugal, Italy and Germany, resulting in numerous flight cancellations and hampering bookings in turn.

The cabin crew is primarily protesting against the airline’s practice of a common Irish law (except for U.K.-based employees) for all its employees, regardless of the country they are based in. The employees ask for a contract governed by the local law.

The issue has taken a massive toll on Ryanair, forcing it to trim its guidance for fiscal 2019 (ending Mar 31, 2019). The European low-cost carrier now anticipates full-year profit (excluding Laudamotion) in the range of €1.10-€1.20 billion (previous outlook was in the band of €1.25-€1.35 billion). Apart from strikes, higher costs including fuel induced the downbeat guidance.

The successive strikes have come at a time when the entire airline industry is already burdened with fuel cost woes. Thus quite obviously, the company’s fuel cost estimates for fiscal 2019 have been raised. Fuel expenses in the period are expected to be higher than last year’s tally by approximately €460 million. Earlier, the same was anticipated to be €430 million dearer. (Read more: Ryanair Trims FY19 View Due to Strikes & Other Headwinds)

Additionally, Ryanair remains concerned about a Brexit-related impact with leisure and business travel demand taking a beating. Management expressed worries that its UK shareholders will be treated as a non-EU entity. Notably, Mar 29, 2019 is the date for the UK to leave the EU. In the event of this scenario materializing, Ryanair’s licencing and flight rights might be hurt. Under the current ownership rules, an EU airline must have more than 50% EU ownership. However, Ryanair would fall short of the requisite numbers if the UK indeed exits the EU. Ryanair fears that the Open Skies agreement might not be operational after 2020.

Amid such negativities, the Zacks Consensus Estimate for second-quarter fiscal 2019 earnings has been revised 16.5% downward over the past 60 days. The company’s unimpressive VGM Score of C further highlights its short-term unattractiveness.

Moreover, shares of the company have declined more than 20% so far this year due to these headwinds.


 

Given these downsides, we believe, investors should discard the Ryanair stock for now. The company’s Zacks Rank #5 (Strong Sell) only substantiates our view.

Key Picks

Some better-ranked stocks in the broader Transportation sector are Spirit Airlines, Inc. (SAVE - Free Report) , CSX Corporation (CSX - Free Report) and Union Pacific Corporation (UNP - Free Report) , each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Shares of Spirit, CSX and Union Pacific have rallied more than 26%, 41% and 43%, respectively, in a year.

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