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United Lifts Guidance: Is It Time to Buy Airline Stocks?

Benjamin Rains
Input cost inflation, higher transportation costs and a stringent labor market are likely to impact Mohawk's Q3 results.

Shares of United UAL climbed on Tuesday after the company announced that it upped its unit revenue guidance for the first quarter and provided strong full-year earnings guidance. Meanwhile, fellow U.S. airline powers Delta DAL and American AAL also saw their stock prices climb, which makes this a great time to see if any of these stocks are worth buying at the moment.

United

In a SEC filing that was made public today, United announced that it expects to post adjusted earnings between $6.50 per share and $8.50 per share in fiscal 2018. Our current Zacks Consensus Estimates are calling for the company to post earnings of $7.50 per share, which falls directly in the middle of United’s latest guidance and would mark a 10.95% year-over-year surge.

Investors might be happy to the note that the airline’s new high-side EPS guidance comes in $0.46 above our current highest earnings estimate. This might signal that some optimistic analysts will soon up their estimates based on United’s new EPS projections.

The company also provided initial 2020 earnings guidance and noted that its CAGR target for EPS is 25%. United projects it will post an EPS figure between $11 and $13 in 2020, based on this three-year growth target.

Along with these more long-term projections, United upped its Q1 fiscal 2018 passenger revenue per available seat mile (PRASM) guidance from between 0% and 2% to 1% and 3%. This important metric is one that airline industry investors pay close attention to as it is a solid way to measure efficiency and profitability. 

United is currently a Zacks Rank #3 (Hold) and sports an “A” grade for Value and a “B” for Momentum in our Style Scores system.

Delta

Delta announced earlier this month that the company carried 13 million passengers in February, which marked a record high for the normally slow travel period. As one might expect, the company’s domestic revenue passenger miles (RPM) climbed 5.4%.

Looking ahead to fiscal 2018, Delta is expected to see its earnings jump by 29% to reach $6.36 per share, while its sales are projected to climb 5.8% to $43.63 billion. The airline power is also expected to expand its EPS figure at an annualized rate of 11.60% over the next three to five years.

Delta is currently a Zacks Rank #2 (Buy) and rocks an overall “B” VGM score, which is supported by its “A” grades for Value and Momentum. Investors should also note that Delta is currently trading at 8.8x earnings—a discount compared to the “Transportation – Airline” industry average as well as its biggest competitors United and American.

American

Aside from the recent cancelation of flights in the Northeast due to severe storms, American Airlines also looks to be a strong stock at the moment. AAL is currently a Zacks Rank #2 (Buy) and boasts an “A” grade for Value, along with some strong growth prospects.

The company is projected to see its fiscal 2018 earnings surge 20.7% to hit $5.89 per share. On top of that, our current estimates call for American’s 2019 EPS figure to climb another 19% above our current 2018 projections. American’s revenues are also expected to jump nearly 7% this year to reach $45.16 billion.

Furthermore, American’s bottom line is projected to expand at an annualized rate of nearly 17% over the next three to five years, which is strong for a company of its size and age. These estimates could climb even higher if recent American initiatives, such as its new “Basic Economy” options on some trans-Atlantic flights, prove to be solid revenue drivers. 

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