3 Airline Stocks to Buy on Record Rise in Factory Orders
Earlier this week, the Commerce Department reported that factory orders surged at a record rate of 10.5% in July. The remarkable increase in durable orders, aided by the sharp increase in aircraft orders, played the key role behind these impressive results.
Durable orders in July witnessed a strong increase of 22.6% to $300.1 billion from the June level. However, orders for non-durable goods declined 0.9%. Also, excluding transportation, factory orders decreased 0.8% in July.
Expansion in Factory Activity
Impressive factory and durable orders indicate the recovery of the manufacturing sector as well as the economy. The Consumer Confidence Index increased to 92.4 in August, reaching the highest level since October 2007. It signals strong rise in demand, as well.
On the other hand, impressive ISM Manufacturing Index and ISM Services Index numbers indicate expansion in manufacturing and services sectors. The Institute for Supply management reported that Manufacturing Index and Services Index increased to 59% and 59.6%, respectively. Both readings beat the consensus estimates.
Orders for Commercial Aircrafts
According to the Commerce Department, orders for commercial aircraft and parts rose 318% in July compared to 11.1% rise in June. This also helped transportation orders for durable goods to rise at record pace of 74.2%. However, the economy might fail to witness an immediate impact of these huge numbers due to of the significant time that production and delivery will take.
The Boeing Company (BA) was the major contributor to aircraft orders. The company reported that it received a record order of 324 planes in July, which also included a sizable order from Singapore-based aircraft-leasing company – BOC Aviation Ltd. Boeing said that it won an order for 82 Boeing jets from the company. The contract is valued at $8.8 billion at list prices. Boeing’s orders also include an order of 150 planes from Emirates, a Dubai-based airline company.
Aircrafts Orders & Air Travel Demand
Rising air travel is one of the major contributors for the increasing orders of commercial aircrafts. According to the International Air Transport Association (:IATA), the expansion of the economic cycle along with rapid GDP and world trade growth is expected to boost air travel by 5.9% in 2014 − the best since 2011. The rise in capacity may, in turn, lead to a 3.5% cut in airfares, thus benefiting travelers. (Read: Airline Profits Flying High on Rising Travel Demand)
3 Airline Stocks to Buy Now
In this favorable environment, investors may consider these three airline stocks to strengthen their portfolios:
United Continental Holdings, Inc. (UAL) is the holding company for United Airlines and Continental Airlines. This Zacks Rank #1 (Strong Buy) company operates through mainline segment and Regional Affiliates to transport cargo and passengers. It also provide regional jet and turboprop services to its regional carriers clients.
This company has impressive current year and next year EPS growth estimates of 60.3% and 32.4% compared to the industry growth rates of 15.1% and 21.2%, respectively. The Zacks Consensus Estimate for the current year EPS has been revised 17.1% upward over the last two months.
Spirit Airlines, Inc. (SAVE) provides travel opportunity throughout the United States, Caribbean and Latin America. The airline company is based in Miramar, Florida.
This Zacks Rank #1 (Strong Buy) company has strong current year EPS growth estimate of 27%, higher than the industry. The Zacks Consensus Estimate for the current year EPS has been revised 5.5% upward over the last two months.
Southwest Airlines Co. (LUV) provides air transportation services in the U.S. and neighbor countries. The Zacks Rank #1 (Strong Buy) company operates through Southwest Airlines and AirTran Airways.
This company has solid current year and next year EPS growth estimates of 55.7% and 15.1%, respectively. The Zacks Consensus Estimate for the current year EPS has been revised 13.7% up over the last two months.
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