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Coronavirus Crisis Crashes Airlines: Should You Buy the Dips?

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Airline stocks have been under the pump lately, mainly due to the coronavirus-led concerns. With this dreaded COVID-19 no longer restricted to its country of origin (China), airlines across the world are taking various steps like cancelling flights in the face of the severely crippled air-travel demand. With this highly contagious disease spreading to countries like Italy, South Korea, Iran, the United States and Japan, many people are unwilling to fly in a bid to stay safe and avoid contracting the disease from a fellow passenger.

Airline Stocks Bear the Brunt

While it is true that the rapid spread of the novel coronavirus, which has claimed more than 4,000 lives apart from infecting in excess of 113,000 people worldwide, rattled almost every nook and corner of the investing space, the airline industry suffered a severe jolt with many carriers ‘reporting 50% no-shows across several markets’ per IATA. 

Evidently, passenger traffic growth across the globe in January 2020 was the slowest in a decade due to the above-mentioned health peril. The traffic readings in the following months are likely to be worse as in January, the coronavirus was only confined to China and was still considered an epidemic.

The sorry state of affairs for airlines is well-reflected in the price performance of the Zacks Airline industry. In the past month, the industry has plunged 33.2% compared with the S&P 500 Index’s loss of 18.7%.

Wake-Up Call to Airlines as Demand Dwindles

With air-travel demand diminishing due to the rapid spread of the disease, airlines from all corners of the globe are trimming their capacity. With Italy being very badly hit by the coronavirus outbreak, European carrier Ryanair Holdings (RYAAY - Free Report) lowered its 2020 traffic forecast by 3 million to 151 million. Notably, Ryanair and British Airways suspended all their flights to/ from Italy following the entire nation on lockdown.

Airline companies based in the United States too have resorted to various measures for combatting the coronavirus-induced sharp drop in demand.  For instance, Delta Air Lines (DAL - Free Report) decided to cut its system capacity by 15 points. While international capacity is trimmed 20-25%, the measure sees a 10-15 % reduction on the domestic front. American Airlines (AAL - Free Report) also walked the same path in this low-demand scenario.

Management at this Fort Worth, TX carrier stated that its international capacity during the peak summer season will witness a 10% cut. Moreover, domestic capacity for April will be trimmed to the tune of 7.5%. American Airlines like United Airlines (UAL - Free Report) and JetBlue Airways (JBLU - Free Report) suspended its forecast for first-quarter 2020 and the full year as well.

 Opportunity Knocks for Intelligent Investors

That the coronavirus-led current stalemate is adding to the airline woes, can be gauged from the fact that even the recent slump in the oil prices failed to provide some relief to the beleaguered  battered stocks.

However, the prevalent drab scenario should not kill one’s investment appetite. At a time when share prices of the airline stocks have declined sharply over the coronavirus-caused concerns, this creates an outlet of opportunity to make a killing by acquiring stocks with high potential at the current depressed prices.

A sensible move would be to buy the beaten-down stocks that are set to gain traction from the encouraging fundamentals.

3 Beaten-Down Airline Stocks to Buy

Azul (AZUL - Free Report) is one of the largest airlines in Brazil in terms of departures and destinations covered.The stock sports a Zacks Rank #1 (Strong Buy). Even though Azul’s shares have declined more than 42% in the past month, analysts are still bullish on the stock and that sentiment can be figured out from the 4.4% upward revision of the Zacks Consensus Estimate for 2020 earnings over the past 90 days. Moreover, current-year earnings per share are projected to increase above 100%, which is way above its industry’s expected rise. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ryanair Holdings is based in Ireland. Even though shares of this Zacks #1 Ranked carrier have declined 19.2% in the past month, the fact that the Zacks Consensus Estimate for current-year earnings has been revised 16.4% upward over the past 90 days, signifies that analysts have not lost confidence in the Ryanair stock. Moreover, current-quarter earnings per share are projected to grow in excess of 100%, which is way above its industry’s anticipated rise.

Spirit Airlines (SAVE - Free Report) is based in Miramar, FL. This ultra low-cost carrier currently has a Zacks Rank #2 (Buy). Even though the stock has shed more than 48% of value in the past month, analysts are still optimistic about the stock as that can be comprehended from the 11.8% upward revision of the Zacks Consensus for 2020 earnings over the past 90 days. Moreover, current-year earnings per share are projected to improve in excess of 7%, ahead of its industry’s estimated rise.

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