// durability of its earnings //
If you believe Parker when he says the company can make more than its cost of capital over the business cycle, then the earnings become "durable" ... let's assume it's believable.
Any time the inverse of the PE is greater than the cost of capital, buying back shares will always lead to a higher EPS (over the business cycle) than paying off debt and reducing interest expenses. The big assumption is making more than the cost of capital over the business cycle.
Also, all companies operate under capital rationing so there are a lot of moving parts and assumptions that go into these decisions ... that why they get paid the big bucks.
Usually, the Fed stays in the background during election time. I think they may skip raising in June due to Brexit, and do an intra-meeting hike in July prior to conventions, and the later election period (If data indicates.). And if things keep improving ... December may be in the picture.
(Though I feel they have to be careful not to flatten the yield curve too much ... we need to see long rates tweak upward .... hopefully due to real growth and not inflation. I would think the Fed wants to normalize, but not at the expense of cooling off the economy ... it's cool enough. And we already know they pay attention to our rate's relative position to the rest of the world.)
Has anyone ever heard that about 380 rigs do 80% of the drilling? I feel sure I read that about a year ago. It talked about the multi-well rigs that can do 4-18 wells in a single spot and then crawl to another spot. That's instead of the older 1 rig/1 well, dismantle, move, setup again (costly and time consuming). Anyway, just haven't heard any discussion here, or on the news when reporting "rig" count, as if all rigs were equal.
Domestically, things are ok. I would think the legacies have near the situation with LUV as far as domestic prasm goes. I thought LUV's prasm was down about 3.5%. And the other half of the prasm problem for legacies is with the global demand, and dollar, fuel surcharges. The dollar and fuel surcharges will eventually lap themselves yoy. Things just have to play out.
There seems to be a tone change with the pundits not believing the industry has changed and are reverting to old ways. That is an easy sell to investors.
Market pundits in all sectors have been jumpy lately ... Armageddon one day, not Armageddon the next ...
A few days ago there was an article that mentioned there were 5 fare increases so far in 2016, and 3 stuck. The article mentioned it was an average $22/ticket round trip. If true, I suppose it will be a few months before the impact given the lag in bookings. Does anyone know the real story about these supposed fare increases?
Unc ... I believe the article talked about a $22 increase on a ticket in the $450 range ... 5% is big ... and so is half that amount. And thanks ... read yours too.
// BTW, I find it interesting how little discussion of cash taxes there is. //
iah ... I think everyone understands that situation, even before they reversed the NOL's and had to report the non-cash taxes.
It's a "show me" situation ... I don't know what it will take. If oil averages what it did last year, EPS will be lower than current estimates ($4.xx) ... don't know what share count the market will use in their thinking (GAAP share count or what?). That's still pretty good for a $30 stock. Anyway, for that to happen, oil needs to get up into the high 50s very soon and stay there for the rest of the year. Near the $60/bbl level ... that's pumping territory.
Just read cav's comment about Kirby and margins ... if those margins are achieved, nothing to worry about.
// LUV's PRASM was down 3.63%; but RSAM was one penny Up from 13.67c to 13.68c //
One's a YOY number and one is a nominal change. And I was never implying LUV isn't doing well, just that domestically operations aren't that different.
LUV had a good year hedging in 2008 ... lost out every year since.
Gaps usually get filled, especially low volume gaps, so a "call" ... just playing the odds (but thanks)
I was listening to Greenspan the other day. He made the comment that the money supply was rising at a higher rate. I wonder if we'll start to hear comments about the Fed reducing their balance sheet by selling some of their long assets to soak up the extra bucks (or not replacing those that mature)? If things are normalizing one would expect the velocity of money to pick up back to the levels of the pre-crisis ... then again I don't know how that would have to be coordinated with the rest of the world. Anyway, if the long end tweaks up, that does leave room for rate hikes without flattening the curve.
There are three variables in the PE. Earnings, growth of earnings and the interest rate to discount those earnings. If you assume no growth in earnings, there is just earnings and the interest rate. A no earnings growth PE is (let's just grab a figure), let's say, 15. If a company makes $2.70/share, the stock should be fairly valued at about $40 (15 times $2.70). Will AAL average $2.70 over the business cycle?
(I realize there is a time value of earnings that would come into play the more variable the earnings are even if they "average" $2.70 ... )
Look at DAL ... low debt, higher dividend, and they are only 12-13% higher per share. But their earnings per share are 9% higher. So, does lower debt and higher dividend add anymore than 3-4% to share price?
// ... at 2015 4q call he said 1q prasm would be the "trough", ... //
cav, I took the term "trough" as being nominal and not YOY. I didn't necessarily take Kirby's statement as saying much, since Q1 nominal prasm could very well be the lowest for the year, but still have other quarters show YOY declines. I didn't check out the numbers to see if that was right way to look at it.
// Sure, why not dumping them all since there's no way to lose money on printed money that costed nothing. Less //
Could be that the Fed doesn't think it is the right time to shrink the money supply by the $4.5 trillion ... could cause deflation, which is what they avoided by doing QE1 and QE2. Meanwhile they are giving the Treasury about $90 billion a year on what they earn from their balance sheet.
Cav ... the airlines are making good money, but the market runs on fear and greed. The Prasm situation, even though it hasn't destroyed earnings, has allowed the creation of the "fear" story about something that is going to happen but hasn't. And fear has a real impact on stock prices.
What's Parker to do? He understands the fear, but what's to correct at this point if earnings are reasonable. The prasm situation didn't correct this year because fuel unexpectedly fell further at the beginning of the year. Parker hasn't been proven wrong yet.
Personally, I'd prefer the industry showing they'll adjust first, and stamp out the fear. Have this negative sentiment change, and then do a dividend increase when greed is moving things. Recent airline dividend increases at other airlines didn't help much in this atmosphere of fear.
I think the industry has taken the initial steps to manage itself ... what it will take and when the market will see that is the question. Let that happen first.
// Fish said today, well know soon if they will do whats needed(scale back growth) //
I had to marvel that they said that. They know darn well almost all airlines have announced that they are planning to scale back. I don't know what they don't know about it.
And that puts it back as to when the market will know it. Maybe the fish saying it is the start ... just like the Q4 2014 CC prasm comments that initiated the fears.
I feel a hike could happen also ... and would prefer it in July for your reasons. Today RF left a low volume gap ... should definitely get back to $9.68 if not lower. RF did bounce off the 200 dma nicely, so with any pullback it could hit that as well. Could get a golden cross soon with the 50 dma crossing the 200. (With all the algo's ... they can make charts look like anything though.)
The midpoint of down 6-7 % prasm beats the Q1 prasm trough by about 2%, which means they have a good chance of going to flat prasm by Q4. And that would be higher yoy revenues (plus credit card revenues).