It has been a very interesting few weeks for airline stocks as a number of factors have led to significant volatility in this space. Many stocks here saw losses approaching 20% in the time frame, though most have managed to recoup these losses in short order.
Arguably the biggest reason for the steep losses, besides the broad market decline, was the Ebola virus. There was a big worry that passenger travel would be significantly curtailed following the outbreak on American shores, but this has died down as Ebola has been relatively contained (besides the current NYC case).
Once the worries in Texas died down though, airline stocks rebounded on strong fundamentals, pretty much across the board. This was especially true as oil prices remain under pressure, with Brent crude oil (arguably a better benchmark for jet fuel) trading at $86/bbl., well below its 3-month high which is near $108/bbl.
Investors also saw strong earnings in this corner of the market, further boosting the prospects of the space going forward. While these trends have impacted a variety of airlines, one that is a particularly interesting investment right now in this environment is undoubtedly United Continental Holdings (UAL).
UAL in Focus
United Continental Holdings represents one of the world’s largest airlines, United. The company was at the center of the Ebola controversy thanks to their transportation of passengers from Europe who had been in the virus-stricken region, but this phase is arguably over now.
In fact, UAL’s chief revenue officer Jim Compton said that bookings haven’t been affected by the Ebola outbreak, suggesting that the market’s fears over this issue have been overblown. And given the company’s recent earnings report, investors could see more clear skies ahead if the current trends are any guide.
UAL Earnings
UAL posted EPS of $2.75, beating estimates of a $2.70 figure. This marks yet another beat for UAL as the company hasn’t missed in the past four quarters and it has posted an average surprise of 6.4% over the time frame.
Analysts seem pretty bullish on the company’s prospects too, and how can you not be given the price of oil lately. Over the past month, the consensus estimate has risen for both the current quarter and the current year, while no estimates have moved lower for either the current year or the next year time frame.
In fact, for the current year, the consensus has moved from $4.48/share 30 days ago to $5.13/share today, representing a pretty solid move higher. And with this big move in expectations, UAL is actually expected to post EPS growth of 84% year-over-year, meaning that this company still has plenty of growth opportunities left at its disposal.
Bottom Line
Given the slump in oil and (somewhat) declining Ebola fears, UAL has managed to surge back in recent trading. And with recent earnings estimate revisions, UAL seems well-positioned for more gains in the months ahead as well.
Given this, we have assigned UAL a Zacks Rank #1 (Strong Buy), and are looking for more outperformance from this stock in the near term. And given that the airline industry is currently ranked in the top 10%, United Continental should be in pretty great company and could be poised to soar to new heights as we close out the year.
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