May 24, 2010
– Comments (3) |
RELATED TICKERS: UAUA.DL
I will Highlight UAUA which has EPS estimates soaring right now.
Who says a falling EURO is a bad thing all around, lol:
Noone knows what EPS will do in 2011. There are no product enhancements that are driving new business.
Airlines have reduced non-fuel unit costs are to all time lows. Amazing reductions in distribution costs. Significantly lower labor costs.
On the revenue side, load factors have been running at all time highs. There just isn't much room on planes these days.
I just don't see that the industry is doing anything that will have a signifcant impact on their future. OK, the UA/CAL deal will reduce competition. But, until they announce Drone commuters or something, this is a mature industry with high fixed costs and a commodity type product.
I own a couple of airline stocks and may buy UA. Charlie's points are true and partly priced in. A lot of airline stocks have doubled in price over the last year. However, I think they could double again for the following reasons:
1) Consolidation - it's going to be tougher under Obama but more is likely (leading to lower costs)
2) Continued reduction in capacity among individual airlines (but the major part of this is over)
3) More fees for baggage etc
4) Reduction in debt - I think airlines will try to reduce debt which has always been a problem. Cash flow should be better.
5) Stronger economic growth leading to: more business travelers (higher margin), more leisure travelers (more pricing power)
6) Cheap euro stimulating trips to Europe (higher margin business)
7) Investor sentiment - I still think investors are wary of investing in airlines because they are in a mature industry etc. Having said that, airline stocks have been pretty resilient during the market downturn.
Re sentiment - I just looked at CAPS ratings for Uaua, Dal and CAL - all one star. These stocks are unloved.