Why Investors Should Avoid Air Transport Services (ATSG) Now
Air Transport Services ATSG is currently mired in multiple headwinds, which we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for earnings for the current-quarter and current year has been revised 10.7% and 13.7% downward, respectively, over the past 60 days. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
An Underperformer: The Air Transport Services stock has declined 32.9% in a year’s time compared with its industry’s 13.6% fall in the same time frame.
Image Source: Zacks Investment Research
Weak Zacks Rank and Style Score: Air Transport Services currently carries a Zacks Rank #4 (Sell). Moreover, ATSG’s current Growth Style Score of C highlights its unattractiveness.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bearish Industry Rank: The industry to which ATSG belongs, currently has a Zacks Industry Rank of 214 (of 250 plus groups). Such an unfavorable rank places ATSG in the bottom 14% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Other Headwinds: Air Transport Services reported lower-than-expected earnings per share in the fourth quarter of 2022. Moreover, management issued a dim EPS guidance for 2023 which is expected in the range of $1.85-$2. In 2022, ATSG's adjusted earnings per share was $2.28.
The downbeat guidance for 2023 was due to headwinds like inflation-related woes, reduced ACMI (aircraft, crew, maintenance & insurance) services operations and higher interest costs.
The increase in expenses on fuel due to the current oil price surge is hurting ATSG's bottom line.
Evidently, operating costs increased 24.8% in 2022 with fuel expenses rising 58.7%. ATSG’s debt load is bothersome too.
Stocks to Consider
Some better-ranked stocks in the Zacks Transportation sector are American Airlines AAL and Alaska Air Group ALK , both carrying a Zacks Rank #2 (Buy), presently.
American Airlines is being aided by the improved air-travel-demand scenario. Owing to upbeat air-travel demand, operating revenues at AAL in fourth-quarter 2022 increased 39.3% year over year. Buoyant air-travel demand is also reflected by the total operating revenue increase of 16.6% from the fourth-quarter 2019 (pre-COVID-19) levels despite 6.1% lower capacity.
Driven by soaring demand on healthy bookings, management expects total unit revenues in the first quarter of 2023 to be roughly 24-27% higher than the level recorded in first-quarter 2022. The AAL stock has evidenced the Zacks Consensus Estimate for first-quarter 2023 earnings being revised upward by 100% in the past 60 days.
Alaska Air too is being aided by the buoyant air-travel-demand scenario. On the back of upbeat air-travel demand and favorable pricing, Alaska Air reported better-than-expected earnings per share in fourth-quarter 2022.
Alaska Air expects to boost its fleet and also workforce in 2023 to meet the anticipated high demand. ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals. The Zacks Consensus Estimate for ALK’s current-year earnings has improved 12.4% over the past 60 days.
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American Airlines Group Inc. (AAL) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report
