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Will Airlines ETF Keep Gaining Altitude Ahead?

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Airlines stocks have been flying high of late, breezing past the broader market fund SPDR S&P 500 ETF (SPY - Free Report) . Decent earnings reports and a plunge in oil prices have been major drivers.

Inside the Earnings Releases 

Delta’s (DAL - Free Report) third-quarter earnings surpassed the Zacks Consensus Estimate by 6 cents while revenues missed it by a narrow margin. For the fourth quarter of 2018, the carrier expects earnings per share between $1.10 and $1.30, the high end of which is above the Zacks Consensus Estimate of $1.28. The stock has gained about 9.6% in the past month (as of Nov 13, 2018).

United Continental Holdings Inc.’s (UAL - Free Report) earnings (on an adjusted basis) of $3.06 per share fell short of the Zacks Consensus Estimate of $3.09, while operating revenues of $11.00 billion outpaced the mark of $10.96 billion. United Continental now expects 2018 earnings between $8 and $8.75 per share (earlier projected range $7.25 to $8.75). The stock has rallied 13.8% in the past month.

Alaska Air Group (ALK - Free Report) reported quarterly earnings of $1.91 per share, beating the Zacks Consensus Estimate of $1.80. Revenues of $2.21 billion surpassed the Zacks Consensus Estimate of $2.204 billion. The stock has added about 9.3% in the past month.

American Airlines Group Inc.’s (AAL - Free Report) third-quarter 2018 earnings of $1.13 per share topped the Zacks Consensus Estimate by a penny. Revenues of $11.559 billion were ahead of the Zacks Consensus Estimate of $11.551 million. Strong demand for air travel led to the year-over-year improvement in the top line. Adjusted earnings per share in 2018 are anticipated between $4.50 and $5, way higher than the Zacks Consensus Estimate of $4.23. The stock has advanced about 18.9% in the past month.

Southwest Airlines Co.’s (LUV - Free Report) third-quarter 2018 earnings per share of $1.08 beat the Zacks Consensus Estimate of $1.06. Operating revenues of $5.575 billion outpaced the Zacks Consensus Estimate of $5.557 billion. However, it has lost 8.6% in the past month.

JetBlue Airways Corporation’s (JBLU - Free Report) third-quarter 2018 adjusted earnings per share surpassed the Zacks Consensus Estimate by a penny. However, total operating revenues of $2.008 billion fell short of the Zacks Consensus Estimate of $2.012 billion. It rose 10.5% in the past month.

Oil Price Slump

Oil price is in a bear market as U.S. sanctions on Iran were weaker than expected. The commodity is now down more than 27% from the high hit in early October. Market watchers earlier expected a harsh punitive measure by the United States on Iran’s energy sector and thus projected a supply crunch. But in reality, the sanctions are way softer.

Washington offered temporary waivers to eight key buyers. So, fears of increased oil supplies put a cap on oil prices. Now since energy costs form a major portion of overall costs for airlines companies, stocks have been gaining.

Positive Analyst Comments

JPMorgan Chase’s Jamie Baker sees the “case for industry margin expansion remains the best we’ve seen in four years.” Macquarie’s Susan Donofrio also sounded optimistic on the sector. The analyst expects the “continuation of a strong demand and revenue environment into the end of the year”, giving scope to operators for “fare increases and ancillary opportunities.”

So, investors can keep track of airlines ETF US Global Jets ETF (JETS - Free Report) in the coming days.

JETS in Focus

The $91.2-million fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. United Continental (13.06%), Delta Airlines (12.28%), American Airlines (11.33%) and Southwest Airlines (10.55%) take the first four positions in the fund. Alaska Air and JetBlue hold the sixth and eighth positions in the fund with a 4.18% and 3.89% weight, respectively. The product charges 60 bps in fees. The fund has added about 6.5% in the past month (as of Nov 13, 2018) against 0.9% losses in SPY (see all industrials ETFs).

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