Saturday, September 30, 2023
  • Login
Euro Times
No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
Euro Times
No Result
View All Result

American Airlines: Q3 Earnings Could Impress, But Avoid The Stock

by Index Investing News
October 19, 2022
in Stock Market
Reading Time: 3 mins read
A A
0
Home Stock Market
Share on FacebookShare on Twitter


FangXiaNuo

Following a long period of 18 months in which airline stocks sank progressively in the face of lingering COVID-19 challenges, the sector is now on fire. September 2022 earnings season has been highly bullish for the space, as airline shares (JETS) have climbed a solid 10% in only 12 trading days.

Improved investor sentiment could continue to fuel the rally after American Airlines (NASDAQ:AAL) reports what is widely expected to be another stunner, following Delta’s (DAL) and United’s (UAL) well-received reports. While I would not be surprised to see American’s numbers shine, I remain skeptical of the stock ahead of what could be a year of deceleration in economic activity.

Red-hot demand for air travel

Regarding the headline numbers, analysts expect American to post YOY revenue growth of 50% in Q3. If achieved, the figure would fall short of United’s 66% reported on October 18 and Delta’s 53% delivered in the prior week. EPS of $0.56 would be only the second positive earnings figure witnessed since the start of the pandemic, in the March 2020 quarter.

At this point, it is very well understood that demand for air travel is pretty much back at an all-time high (see airport traffic chart below). The key players in the airline industry have begun to report metrics that are now better than pre-pandemic levels — think per-unit revenues, occupancy, and even segment sales, in many cases.

DM Martins Research, data from tsa.gov

I will be interested to see how American performs outside the US. This is where Delta and United were able to flex their muscles the most, since international travel has lagged behind the rebound in domestic activity during this COVID-19 recovery. The potentially bad news for American is that the company is heavily exposed to a Latin American market (one-half of international revenues in Q2, see below) that, based on its peers’ reports, has performed quite a bit worse than their Transatlantic businesses.

Lastly, the earnings day discussions will not be complete without a serious conversation about capacity, which in turn also impacts ex-fuel operating costs. The airline space has been suffering from labor shortages and, in some cases, delayed aircraft deliveries from Boeing (BA). Not having the resources to capitalize on red-hot demand can be a problem for a sector in which “the good times” can be so rare and end so quickly.

Airline peer comp: Q2 International Revenues bar chart

DM Martins Research, data from company IR pages

American Airlines is not my favorite airline stock

My take on the airline sector is to avoid it in general, considering the historically poor risk-adjusted returns, unless one is looking to make a quick buck betting on the early stages of economic expansion (probably not now). Also keep in mind that hot inflation and rising interest rates can quickly lead to decreased discretionary spending as early as the first few months of 2023, which could be bad news for airlines.

The other approach is to be market neutral by betting on winners against losers. Assuming that this is the trading proposition, I would likely be long DAL and UAL and short AAL — an idea that I have defended since the publishing of my first airline sector deep dive, in 2018. The three key reasons supporting my skepticism towards the latter are (1) a less robust balance sheet (see chart below), (2) unit margins that are the lowest of the Big 3 legacy carriers, and (3) an international mix that leans too heavily on Latin America and not enough on the more lucrative Atlantic business.

Airline peer comp, net debt to asset graph based on Q2 numbers

DM Martins Research, data from company reports

Of course, AAL can still move higher this week, depending on the quality of the Q3 results and outlook. But even in the immediate term, I wonder whether most of the upside opportunity may have already been captured in the earlier days of this earnings season. For these reasons, I stay clear of AAL at this moment.



Source link

Tags: airlinesAmericanavoidEarningsImpressStock
Previous Post

Wall Street Breakfast October 19: Netflix Jumps, Clears Q3 F

Next Post

Aptos (APT) Token Crashes on Listing Day By DailyCoin

Related Posts

Israeli’s Nano-X settles US SEC charges over costs of flagship imaging device By Reuters

by Reuters
September 29, 2023
0

© Reuters. FILE PHOTO: The headquarters of the U.S. Securities and Exchange Commission (SEC) are seen in Washington, July 6,...

Nike Takes A Step Higher, But This Doesn’t Mean It’s Time To Buy (NYSE:NKE)

by Index Investing News
September 29, 2023
0

Scott OlsonOne thing that investors of individual stocks should get used to is volatility. Some days will be really positive,...

Okta: We See Profitable Growth Toward FY2025 (NASDAQ:OKTA)

by Euro Times
September 29, 2023
0

Christine944/iStock via Getty Images We remain buy-rated on Okta, Inc. (NASDAQ:OKTA). We expect the stock has priced in the macro...

International Paper set to release Q3 2023 earnings on October 26 By Investing.com

by Investing.com
September 29, 2023
0

© Reuters. International Paper (NYSE: IP) announced on Friday that it will release its earnings for the third quarter of...

PFFV ETF: Variable Rate Preferred Securities, But Beware The Financials Concentration

by Euro Times
September 29, 2023
0

cagkansayin/iStock via Getty Images Thesis The Global X Variable Rate Preferred ETF (NYSEARCA:PFFV) is a fixed income exchange traded fund....

New York judge greenlights minimum wage law for app-based delivery workers By Investing.com

by Investing.com
September 29, 2023
0

© Reuters. In a landmark ruling on Thursday, New York Acting Supreme Court Justice Nicholas Moyne rejected an attempt by...

Next Post

Aptos (APT) Token Crashes on Listing Day By DailyCoin

Most Used Crypto Terminology Explained — The Only Guide You’ll Need | by Arpit Agarwal | The Capital | Oct, 2022

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Israeli’s Nano-X settles US SEC charges over costs of flagship imaging device By Reuters

September 29, 2023

S&P 500 slumps ~5% in September, notches worst monthly performance of 2023 (NYSEARCA:SPY)

September 29, 2023

Bill Ackman’s ‘SPARC’ gets OK from the SEC and he’s ready for a deal: ‘please call me’

September 29, 2023

IRS Contractor Charged With Leaking Trump Tax Returns To News Outlets

September 29, 2023

An Unacceptable Reality — Global Issues

September 29, 2023

Georgia preparing limited live CBDC pilot, considering Ripple among tech providers By Cointelegraph

September 29, 2023
Euro Times

Get the latest news and follow the coverage of Business & Financial News, Stock Market Updates, Analysis, and more from the trusted sources.

CATEGORIES

  • Business
  • Cryptocurrency
  • Finance
  • Health
  • Investing
  • Markets
  • Politics
  • Stock Market
  • Technology
  • Uncategorized
  • World

LATEST UPDATES

Israeli’s Nano-X settles US SEC charges over costs of flagship imaging device By Reuters

S&P 500 slumps ~5% in September, notches worst monthly performance of 2023 (NYSEARCA:SPY)

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In