To: j g cordes who wrote (25400 ) 3/2/2000 5:43:00 PM From: d. alexander Read Replies (1) | Respond to
Jim; from Briefing12:41 ET ******Airlines Yesterday, we profiled the badly beaten up apparel retailing group. Today, we look at the equally ugly airline sector. Whereas rising interest rates are depressing the apparel group, it is rising oil prices that are hurting the airline stocks. UAL (UAL 47 7/8 -1/4), US Air (U 18 1/8 -9/16), AMR Corp (AMR 53 15/16 -13/16), Northwest Air (NWAC 16 13/16 -5/16), Delta (DAL 44 1/8 -1 5/16) and Southwest Air (LUV 17 11/16 -9/16) are all well off of their 52-wk highs... In fact, UAL and Delta setting new 52-wk lows, with NWAC, U and AMR close to doing the same... Average decline off of 52-wk high is 45%... But just as we argued that drop in apparel retailers was an overreaction to the rise in rates, Briefing.com contends that the sell-off in the airline group overstates the negative impact of higher fuel prices... Yes, it will hurt earnings but at current prices bad news is fully priced in... And with oil now hovering in the $32 bbl area, Briefing.com betting that crude more likely to fall by $5 bbl than rise by $5 bbl... In other words, if pressure compels OPEC to increase production and domestic oil companies increase drilling activity oil prices likely to start trending a bit lower over next few months... And with airline stocks trading at such depressed levels (group trading at 5.6x current FY projected earnings), we expect group to respond favorably to any improvement in outlook for crude... Investors should also note that group doing a good job of improving operating efficiencies by adapting to changing technologies... LUV recently noted that about a quarter of January passenger revenues came through its Web site, putting company on track to exceed $1 billion in e-commerce revenues in 2000... According to Chief Financial Officer Gary Kelly, LUV can process a Web booking for ``well under a dollar,' whereas a travel agent booking costs almost $10 and bookings through Southwest's phone reservation system fall between the two... In other words, company's well-positioned to leverage drop in fuel costs into improved bottom-line numbers... As crude slips and the earnings outlook begins to improve, the analyst community will move to raise ratings... While the near-term might still hold some risks, Briefing.com contends that the long-term upside potential is now great enough to warrant some bargain hunting... Our favorites in the group are Southwest (LUV), AMR (AMR), Northwest (NWAC) and UAL (UAL). -- RW optionsource.com
