Travel Is Back: What Are Investors Filling Up With?

Economy, Employment, Inflation and The Travel Industry Status

Amid slowing economic conditions, the United States economy was able to add another 263,000 non-farm payrolls in September. The steady rebound of the labor market due to mass layoffs caused by the pandemic has seen employment figures tick down to pre-pandemic levels of 3.5%.

Despite the challenges, from red-hot inflation hitting a four-decade high, to the Federal Reserve’s aggressive monetary tightening, the American labor market is holding steady against possible headwinds.

While job growth has been steady throughout most sectors, with the professional and business services sector seeing the biggest growth, sectors such as hospitality and retail, which were among the hardest hit during the early months of the pandemic, are still falling short of pre-pandemic levels.

The latest figures reveal that leisure and hospitality are still somewhat 1.1 million workers short of their February 2020 levels. In the most recent jobs report, around 83,000 hospitality and leisure jobs were added.

The worsening economic conditions and the rising cost of living have left many people to jump ship and look for high-paying jobs elsewhere.

Though the sector has been biting some hard bullets in terms of its labor performance – stock performances have been painting a completely different picture in the meantime.

The red-hot summer travel season, which led to a slew of flight cancellations, and an influx of foreign travel nearly two years after countries closed their borders to tourists has helped give the sector, and several stock options rebound to their best performance levels yet.

It’s been a tumultuous time, and travel and leisure stocks were among those impacted the most by the pandemic.

Yet, pent-up consumer demand is sending stocks in all sorts of directions as consumers adjust their habits due to inflationary concerns. The higher cost of traveling hasn’t done much to cool off the hiatus of domestic and international travel, as consumer habits are constantly changing and shifting as economic conditions move.

From pricey airline tickets, thousands of delayed and canceled flights, and costly fuel, to soaring hotel rates consumers are not pulling back, as many are eager to get back out there and travel, an ongoing trend now coined as “revenge travel.”

And that’s just what happened this year.

Illusionary rankings have placed the U.S. as the biggest travel and leisure market in the world, followed by China and Germany.

Prices are set to remain elevated for much of the year, and some experts suggest that consumers should brace themselves for costs to only keep going up in 2023 as well.

Travel Stocks Performance

But on the stock market, higher prices reflected in overall better performance.

Leading vacation ownership conglomerate, and resort management group, Bluegreen Vacations Holding Corporation (NYSE: BVH) experienced a 21.8% year-over-year Q2 growth, marking a total of $235,60 million in revenue for the period. The surge in leisure and travel has also moved the needle for BVH, with stocks gaining 21.6% in the last 12 months.

Travel + Leisure Co (NYSE: TNL), one of the world’s biggest and most well-known travel companies also experienced major gains throughout most of Q2. So far, stock performance is up 19.6%, and some analysts expect that revenue is set to balloon by 14.5% year-over-year.

This trajectory could help TNL become a low-hanging affordable stock pick for investors who are willing to diversify their portfolios with travel, tourism, and hospitality stocks.

Target Hospitality Corporation (NASDAQ: TH) is another must-watch leisure stock pick, as the company recently entered an expanded lease for enhanced infrastructure facility services. Strategic diversification means that the company can increase its hospitality services in a more diverse and community-oriented manner.

Even with prices zig-zagging between $2.72 – $15.67, the last year has seen stock prices gain more than 244.4%. TH is not the most lucrative asset for your portfolio, but it’s a growing opportunity with further room for improvement and development.

Airbnb (NASDAQ: ABNB) has made some promising performance this year, seeing an 18% increase in net profit margin during Q2. On top of this, the company has kept 38% of its $2.1 billion revenue as free cash flow. The company has also managed to bring its operational costs down, spending less in the first half of the year than in the same period last year.

The company had an impressive summer performance which helped stocks outperform other top competitors. By May, right before the summer travel chaos, stocks were up 7.71% as bookings hit an all-time high since the start of the pandemic in 2020.

The strong return on travel has also brought back online bookings and reservations websites as consumers take to the skies. Bookings Holdings (NASDAQ: BKNG) has kept a resilient performance despite enduring strong market volatility brought throughout the first half of the year.

YTD prices are down, but the company still manages to operate a healthy balance sheet and has seen improvements on most of its fundamentals. Takeaways from its Q2 earnings call saw revenues increase to $4.3 billion, a 99% increase for the same period last year.

U.S. airline carriers have also managed to rebound as the summer travel chaos saw an exodus of flights being canceled and delayed due to soaring demand and a tight labor market.

Despite these challenges, several airlines are now enjoying improved share performance, as investors start to rekindle their love for aviation stocks.

Delta Air Lines (NYSE: DAL) has been one of the strongest performers on the board. Shares have held a strong performance, with DAL jumping 4% in one day after the S&P sank to a new low. On top of this movement, revenue for Q3 increased by 53% compared to the same recorded period last year, and the company is now forecasting an EPS for Q4 between $1 to $1.25, above the consensus of $0.80.

Another airline that looks to enjoy steady performance is American Airlines (NASDAQ: AAL) which recently raised its Q3 revenue guidance ahead of earnings. The announcement by Americans saw AAL jump by 5% during premarket trading. Overall, stock prices have been struggling, but the company has managed to regain its footing in the better half of the year as oil prices came down and consumer demand remained steady.

Then there is United Airlines (NASDAQ: UAL) which saw total revenue increase by 6% for Q2 over the same quarter for 2019. The company has also boosted its guidance for Q3 which gave share prices a 5.52% performance boost due to positive forward-looking guidance. Capacity figures for the second quarter were down by 15%, but this is due to higher passenger volumes which ultimately led to the company delaying or canceling flights.

Final Thoughts

The strong return of travel, leisure, and tourism shows that consumer demand and overall spending resilience have remained strong despite the ongoing economic challenges and looming uncertainty.

The months ahead could prove to be positive if companies can hold down their prices, and see much of the inflationary costs being passed through to consumers. It’s a bit of rocky guidance, but the pent-up demand could see consumers enduring another wave of travel chaos this upcoming holiday season despite the higher traveling costs.

For investors, this does bring some good news, but it also means that they will need to continuously follow and monitor performance to ensure they are following an upward trajectory. On the back of this, investors should opt to be more diverse when looking at travel and leisure stocks, but hold strong for long-term wins instead of near-term gains.

S&P 500 (SPY) Gains Ground As Rebound Continues

Key Insights

  • S&P 500 moved higher as traders continued to buy beaten stocks.  
  • The strong report from Netflix provided additional support to S&P 500 in the post-market session. 
  • A move above 3730 will push S&P 500 back towards the recent highs near 3760.

S&P 500 Gained More Than 1% In Broad Rebound

S&P 500 lost momentum after testing the resistance level at 3760 and pulled back towards the 3720 level. However, stocks were still able to record healthy gains for the day.

Industrial Production report, which indicated that Industrial Production increased by 0.4% month-over-month in September, provided material support to stocks. However, it looks that continuation of the technical rebound was the main driver for the stock market today.

Cruise stocks were among the biggest gainers today. Carnival Corporation, Norwegian Cruise Line Holdings, and Royal Caribbean Cruises were up by 7-11% today.

Lockheed Martin gained 8% after beating analyst estimates on earnings and increasing stock buyback. Salesforce was up by more than 4% after Starboard Value acquired a stake in the company.

Interestingly, leading energy stocks like Exxon Mobil and Chevron did not move lower despite the strong sell-off in the oil markets.

From a big picture point of view, the rebound was broad, and all market segments moved higher. Traders continued to hunt for bargains and bought beaten stocks.

In the post-market session, Netflix stock rallied towards $275 after releasing its earnings report. The company reported revenue of $7.48 billion and earnings of $3.19 per share, exceeding analyst expectations on both earnings and revenue. Talking about the fourth-quarter guidance, Netflix noted that strong dollar remained a significant headwind. In the last quarter of this year, Netflix expects to report revenue of $7.8 billion.

United Airlines report beat analyst estimates, pushing the stock towards $40 in the post-market session. The company noted that strong COVID recovery trends would continue to overcome the recessionary pressures. Previously, traders were worried that recession fears may hurt consumer activity, but it looks that demand for air travel remains strong.

S&P 500 Moves Higher After Netflix Beats Expectations

S&P 500

The strong report from Netflix provided support to S&P 500 futures and pushed them above the resistance at 3730. RSI remains in the moderate territory, so S&P 500 has plenty of room to gain additional upside momentum in the upcoming trading sessions.

In case S&P 500 manages to settle above 3730, it will move towards the next resistance, which is located near the recent highs at 3760. A move above this level will open the way to the test of the resistance at the highs of the previous rebound at 3805.

On the support side, a move below 3730 will push S&P 500 towards the support at 3700. In case S&P 500 declines below this level, it will head towards the next support at 3675. A successful test of the support at 3675 will open the way to the test of the support at 3640.

For a look at all of today’s economic events, check out our economic calendar.

Best Airline Stocks To Buy In June

Key Insights

  • United Airlines has recently updated its guidance for the second quarter, highlighting strong demand for air travel. 
  • Analyst estimates for United Airlines and Delta Air Lines are moving higher, which is bullish for these stocks. 
  • Both stocks are trading at an attractive 6 forward P/E. 

The recent moves in the oil markets did not put too much pressure on the shares of airline stocks, which are trading well above March lows on expectations of a strong summer season.

United Airlines Holdings

United Airlines has recently raised its guidance for the second quarter. The company expects that total revenue per available seat mile (TRASM) will increase by 23% – 25% compared to the same period in 2019. The previous guidance called for growth of 17%.

At the same time, United Airlines noted that its average aircraft fuel price per gallon would increase from the previous estimate of $3.43 to $4.02.

As a result, its adjusted operating margin would be near the 10% level, in line with the previous estimate. While high fuel prices hurt profitability, the market is focused on the company’s ability to grow TRASM.

Currently, analysts expect that United Airlines will report earnings of $1.01 per share in the current year and $7.23 per share in the next year, so the stock is trading at an attractive 6 forward P/E.

Delta Air Lines

Analyst estimates for Delta Air Lines have been moving higher in recent weeks. The company is expected to report earnings of $2.85 per share in 2022 and $6.17 per share in 2023, so the stock is trading at 6 forward P/E, in line with United Airlines.

It should be noted that analyst estimates continue to move higher despite the strong bullish trend in the oil markets. At this point, it looks that demand for air travel is strong enough to offset high fuel prices.

However, traders will need to monitor fuel prices closely as an additional upside move could put pressure on analyst estimates and hurt the price of Delta Air Lines stock.

To keep up with the latest earnings updates, visit our earnings calendar.

Delta Air Lines Is Up By 5%, Here Is Why

Key Insights

  • Delta Air Lines beats analyst estimates on both earnings and revenue. 
  • The company mentions “a strong rebound in demand”. 
  • Airline stocks have a good chance to gain additional upside momentum as traders focus on the upcoming summer season. 

Delta Air Lines Stock Rallies After Strong Earnings Report

We have recently discussed the best airline stocks, and now we have a chance to take a look at the earnings report from one of the leaders in this segment, Delta Air Lines.

Delta Air Lines reported revenue of $9.35 billion and an adjusted loss of $1.23 per share, beating analyst estimates on both earnings and revenue.

The company noted that the strong rebound in demand provided Delta Air Lines with an opportunity to return to profitability in March.

Traders rushed to buy Delta Air Lines stock as the company’s comments highlighted strong demand. Other airline stocks, like Southwest Airlines and United Airlines, have also gained strong upside momentum today.

What’s Next For Delta Air Lines Stock?

The market’s key concern is the impact of rising oil prices on airlines’ profitability. The main question is whether demand is strong enough to offset the negative impact of rising costs.

Delta Air Lines’ report shows that demand rebounds at a robust pace, so it’s not surprising to see that the company’s stock enjoyed strong support today. At this point, the near-term financials are not important as the market is focused on the company’s future performance.

In the next year, Delta Air Lines is expected to report earnings of $5.55 per share, so the stock is trading at roughly 7 forward P/E, which is cheap for the current market environment. Importanly, analyst estimates have started to move higher, which may provide more support to the stock in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.

Why Delta Air Lines Stock Is Up By 9% Today

Key Insights

  • Airline stocks enjoy strong support at WTI oil attempts to settle below the $95 level.
  • Delta Air Lines says that demand stays strong and customers are ready to pay higher fares.
  • Traders should pay attention to the dynamics of Delta Air Lines’ earnings estimates.

Delta Air Lines Stock Rallies As WTI Oil Tests The $95 Level

Shares of Delta Air Lines gained strong upside momentum as WTI oil declined below the $95 level amid hopes for progress in Russia – Ukraine negotiations. Other stocks in the airline segment, like United Airlines Holdings or Southwest Airlines, are also moving higher in today’s trading session.

Airline stocks have taken a significant hit when WTI oil moved towards the $130 level, but the recent strong pullback in the oil market has finally provided material support.

Oil is moving lower as sanctions on Russia did not lead to a complete halt of Russian energy exports, and it looks that energy markets are relieved that the worst-case scenario has not materialized.

It is not surprising to see that Delta Air Lines stock rallied after oil settled below the psychologically important $100 level as energy prices are a key component of the company’s costs.

What’s Next For Delta Air Lines Stock?

Analyst estimates for Delta Air Lines’ earnings have been moving lower in recent weeks due to higher oil prices. Currently, Delta Air Lines is expected to report earnings of $1.65 per share in 2022 and $5.52 per share in 2023, so the stock is trading at 6 forward P/E for 2023.

Today, Delta Air Lines noted that customers were still willing to pay higher prices due to pent-up demand for international travel. These comments provided additional support to Delta Air Lines stock. However, it remains to be seen whether they will provide enough support to analyst estimates which may continue to move lower despite the recent pullback in the oil market as oil prices remain at high levels.

In the near term, Delta Air Lines stock will likely remain highly sensitive to the dynamics of the oil market. In the longer term, traders will pay attention to the dynamics of earnings estimates. If earnings estimates stabilize and start to move higher, the stock will get additional support.

For a look at all of today’s economic events, check out our economic calendar.

United Airlines Raises Q1 Guidance

United Airlines Holdings Inc. (UAL) is trading higher by more than 6% in Tuesday’s pre-market after increasing Q1 2022 revenue guidance. The carrier now expects revenue to decline 20% to 25% compared to Q1 2019, yielding $7.67 to $7.91 billion compared to prior $7.53 billion guidance. In addition, Q1 capacity is expected to drop 19% compared to 2019. The company forecast an average Q1 fuel price of $2.99 per gallon, contained by hedging contracts ahead of the most recent crude oil spike.

Business Travel Rebound?

United insists that business travel is rebounding faster than expected but carriers said the same thing in early 2021, ahead of two COVID variants that forced corporations to delay travel plans.  The optimism seems unfounded at this point, given international tensions that will impact the European continent throughout 2022, as well as soaring ticket prices that force air travelers to reconsider plans. In fact, basic economy has already jumped to $600 or more for U.S. transcontinental travel in June and is likely to head higher.

The company also noted that system booking of leisure travelers had surged almost 40 basis points since the first week of the year but it’s an odd comparison, given the Omicron variant was decimating flight staffs and schedules at that time, with over 3,000 infected employees. It’s also instructive that United didn’t discuss earnings-per-share (EPS) during the presentation because CEO Scott Kirby predicted in January that profitability would return in the second quarter.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Hold’ rating based upon 9 ‘Buy’, 3 ‘Overweight’, 7 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, four analysts recommend that shareholders close positions. Price targets currently range from a low of $32 to a Street-high $78 while the stock is set to open Tuesday’s session about $5 above the low target. There’s plenty of potential upside with this dismal placement but airlines need a safer world to attract customer growth.

United Airlines posted an all-time high at 97.85 in 2018 and turned lower, breaking 6-year support in the upper 30s during 2020’s pandemic decline. The subsequent recovery wave stalled at the 50% selloff retracement and 200-week moving average in March 2021, ahead of a shallow downtrend that accelerated when Russia invaded the Ukraine. The decline has now reached 2020 support near 30 but bounces are likely to meet aggressive selling pressure above 40.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why United Airlines Stock Is Up By 12% Today

Key Insights

  • Oil’s pullback from recent highs provides support to airline stocks. 
  • Earnings estimates will be cut aggressively if oil settles at current levels.
  • Traders should monitor the dynamics of longer-dated oil futures to evaluate market sentiment.

United Airlines Stock Rallies As Oil Pulls Back From Highs

Shares of United Airlines gained strong upside momentum as WTI oil pulled back below the $120 level. Other stocks in the segment like Southwest Airlines or Delta Air Lines have also enjoyed strong support today.

High fuel prices put direct pressure on airlines, so any normalization on this front is bullish for United Airlines and other airline stocks. However, it is too early to tell whether the oil market has calmed down as the current move may be caused by profit taking after the strong rally.

United Airlines stock is down by more than 15% year-to-date, but it remains to be seen whether it will attract speculative traders in case oil prices stay near current levels.

What’s Next For United Airlines Stock?

Analysts expect that United Airlines will report a loss of $0.85 per share in the current year and a profit of $6.62 per share in the next year, so the stock is trading at less than 6 forward P/E.

However, analyst estimates have been moving lower in recent months, and this trend will be continued due to high oil prices. The key question is whether the market will see the current disruption as a longer-term problem.

At this point, crude oil futures indicate that traders expect prices near the $90 level at the end of 2022. In case the price of longer-dated futures contracts moves above the $100 level, airline stocks will find themselves under strong pressure as analysts will likely cut their forecasts aggressively.

In this light, traders will stay focused on geopolitical developments. In case the situation normalizes, energy markets will have a chance to get closer to the previous levels. However, if geopolitical tensions escalate, the situation in the energy markets may get out of control and hurt airlines through lower demand and higher costs.

For a look at all of today’s economic events, check out our economic calendar.

Why Delta Air Lines Stock Is Down By 4% Today

Key Insights

  • Airline stocks drop after Russia attacks Ukraine but rebound from session lows
  • The major conflict adds to uncertainty brought by the coronavirus pandemic
  • Near-term dynamics of Delta Air Lines stock would be determined by general market sentiment, as the direct impact of the conflict is limited

Delta Air Lines Stock Retreats Amid War In Ukraine

Shares of Delta Air Lines gained strong downside momentum at the start of today’s trading session after Russia attacked Ukraine.

Other airline stocks are also moving lower today. American Airlines Group is down by 3% today, while United Airlines Holdings is down by 4%. It should be noted that airline stocks have already moved away from their lows.

The major conflict in Ukraine has already led to cancelled flights in the region of the conflict. Investors fear that the situation may escalate further, and the huge territory of Russia might become unavailable for civil aircraft. Such a scenario is theoretically possible in case sanctions are imposed on Russia’s Aeroflot.

What’s Next For Delta Air Lines Stock?

At this point, it is unclear whether the air traffic will be targeted by sanctions and whether U.S. – based airlines will face any major problems as their main markets are far away from the territory of active combat.

Currently, analysts expect that Delta Air Lines will report earnings of $1.96 per share in the current year, so the stock is trading at 19 forward P/E for 2022. However, earnings are expected to grow to $5.69 in the next year.

The dramatic escalation of the conflict between Russia and Ukraine has already put additional pressure on the market sentiment, so it’s not surprising to see that the whole airline segment was moving lower in today’s trading.

However, the real impact on the financials of Delta Air Lines and other U.S. airlines may be minimal, so their stocks may have a good chance to develop upside momentum in the upcoming trading sessions. The key risk right now is the continued escalation of the current situation in Ukraine, which could put additional pressure on global markets.

For a look at all of today’s economic events, check out our economic calendar.

In The Spotlight – Big Wall Street Banks as the Main Power in S&P 500

Banks’ earnings

Big Wall Street banks are in the spotlight right out of the gate with Goldman Sachs set to release results before markets open. They will be followed by Bank of America, Morgan Stanley, and U.S. Bancorp tomorrow (Wednesday). Bank results got off to a mixed start on Friday. JPMorgan Chase, Citigroup, and Wells Fargo all topped profit estimates for Q4 but JPMorgan and Citi delivered disappointments in other areas.

In particular, investors are nervous about higher expenses that cut into Q4 profits for both JPMorgan and Citi and which both banks forecast would continue to weigh on results in 2022. JPMorgan and Citi also saw -11% decreases in trading revenue, with fixed income trading down by double digits for both.

There are also signs of slowing loan growth that some analysts worry is an early sign of slowing consumer demand for big-ticket items as inflation continues to climb. While banks will eventually benefit from higher U.S. interest rates that are anticipated in the year ahead, a big pullback in consumer lending is a threat to some of the more lofty Wall Street expectations had for the sector in 2022.

Global economy

Globally, not a lot changed over the extended weekend. China might have provided a bit of a surprise with additional monetary easing into a struggling GDP and sagging real estate prices. It’s worth noting, Omicron has now been detected in Beijing for the first time, just three weeks before the city is due to host the Winter Olympics. Now the Chinese are shutting down and suspending the sale of Olympic tickets to the public.

Tensions remain heated between Hong Kong activists and Chinese government officials. North Korea launched its fourth missile test this month. After North Korea’s missile test last week, the US announced sanctions on eight North Korean and Russian individuals and entities for supporting North Korea’s ballistic missile programs.

Tensions between the U.S. and Russia seem to be headed in the wrong direction with Russia over the weekend moving troops and equipment into Belarus for joint military exercises.

The so-called “Allied Resolve” drills are set to take place near borders with NATO members Poland and Lithuania, as well as Ukraine where Russia has maintained its alarming military presence.

Most U.S. military experts don’t really think Russia has any real intentions of invading Ukraine or any other EU country. However, Western countries also have increased their military presence along borders and other strategic locations which increases the chances that a broader conflict could “accidentally” be sparked.

Europe’s gas supplies are also at risk as Russia continues to dangle the threat of cutting them off. Most of the tension stems from Russia’s demand that former Soviet countries be barred from entering NATO, something the U.S. and other NATO allies have refused.

In the USA, we are heading deeper into earnings season and investors are going to be paying close attention to costs and expenses. As I mentioned, late last week, JPMorgan warned that higher expenses and higher spending on hiring in 2022 could create some headwinds.

Looking ahead, it will be interesting to see how many executive teams start providing guidance and warnings that corporate expenses are rising faster than anticipated and what if any damage will be due to profit margins?

Remember, some companies have said they are passing the additional rising costs on to the consumer while other companies are eating a majority of the higher expenses in an attempt to gain more market share.

How the stock market decides to differentiate the strategy and style could greatly impact money flow and valuations. Goldman Sachs, J.B. Hunt, Charles Schwab, Citrix, Concentrix, and Interactive Brokers report earnings today.

Data to watch

Tomorrow we have Alcoa, Bank of America, Kinder Morgan, Morgan Stanley, Procter & Gamble, and United Airlines.

Thursday we have American Airlines, Baker Hughes, Netflix, and Union Pacific.

Then next week we have big names like Apple, Boeing, Caterpillar, McDonalds, Microsoft and Verizon reporting earnings.

Let’s also not forget next week we have the first Fed FOMC meeting of the new year.

With the U.S. Federal Reserve getting ever closer to implementing its first rate hikes, which most anticipate will begin in March, investors are growing less enchanted with some of the high-growth and momentum stocks that saw outsized share price gains last year.

This trend is most evident in the tech-heavy Nasdaq where nearly half of the index’s stocks have fallen by -50% from their recent peaks. The Nasdaq itself is only down by about -7% from its most recent record high. The selloff has been very much concentrated in highly-leveraged companies that have yet to deliver a profit, as the prospect of higher rates reduce future profit potential. Earnings results from these high-fliers will likely be harshly scrutinized as Wall Street tries to separate the “wheat from the chaff,” so to speak.

On the economic data front, Empire State Manufacturing and the NAHB Housing Market are today’s highlights.

For a look at all of today’s economic events, check out our economic calendar.

Wall Street Week Ahead Earnings: Goldman Sachs, Procter & Gamble, United Airlines, and Netflix in focus

The following is a list of earnings slated for release January 17-21, along with a few previews. A number of big companies will report earnings in the week ahead, including Goldman Sachs and Bank of America, Procter & Gamble, Netflix, and a number of transportation companies. Investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus variant to see how it affects earnings in 2022.

Earnings Calendar For The Week Of January 17

Monday (January 17)

No major earnings are scheduled for release. The stock market in the U.S. will be closed in observance of Martin Luther King, Jr. Day.

Tuesday (January 18)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank Goldman Sachs is expected to report its fourth-quarter earnings of $11.89 per share, which represents a year-over-year decline of about 2% from $12.08 per share seen in the same period a year ago.

The world’s leading investment manager would see a decline in revenue of nearly 1% to $11.65 billion from a year ago. It is worth noting that in the last two years, Goldman Sachs has surpassed market consensus expectations for profit and revenue most of the time.

“We expect Goldman Sachs to report mixed results, with revenues outperforming the consensus estimates and earnings missing the expected figure. The investment bank reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y. This was driven by significant growth in the investment banking business, followed by higher global markets and consumer & wealth management revenues,” noted analysts at TREFIS.

“While investment banking grew on the back of growth in mergers &acquisitions (M&A) and equity underwriting deal volumes, global markets benefited from higher equity trading revenues. Similarly, the consumer & wealth management segment gained from an increase in outstanding loan balances. That said, the top-line was partially offset by negative growth in the asset management division, primarily due to lower equity investment revenues. We expect the same trend to continue in the fourth quarter. We estimate Goldman Sachs’ valuation to be around $447 per share which is 14% above the current market price.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 18

TICKER COMPANY EPS FORECAST
BAC Bank of America $0.78
SCHW Charles Schwab $0.83
CNXC Concentrix $2.54
HWC Hancock Whitney $1.33
IBKR Interactive Brokers $0.74
JBHT J.B. Hunt Transport Services $2.0
MBWM Mercantile Bank $0.85
ONB Old National Bancorp $0.38
PNFP Pinnacle Financial Partners $1.56
PNC PNC Financial Services $3.62
PRGS Progress Software $0.62
SBNY Signature Bank $3.92
TFC Truist Financial $1.27
UCBI United Community Banks $0.63

 

Wednesday (January 19)

IN THE SPOTLIGHT: PROCTER & GAMBLE, UNITED AIRLINES

PROCTER & GAMBLE: The world’s largest maker of consumer-packaged goods, is expected to report its fiscal second-quarter earnings of $1.66 per share, which represents year-on-year growth of just over 1% from $1.64 per share seen in the same period a year ago.

The Cincinnati, Ohio-based consumer goods corporation would post revenue growth of over 3% to $20.4 billion from a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“We believe strategy changes can sustain Procter & Gamble (PG) LT topline growth in the 4% range. In the US, a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports LT topline growth above HPC peers. While near-term pressures from commodity/freight inflation will impact margins, we believe PG has stronger pricing power than peers, particularly with share gains,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

PG trades at ~22.5x CY22e EPS, an HSD% discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher LT PG growth.”

UNITED AIRLINES: The major U.S. airline company is expected to report a loss for the eight-consecutive time of $-2.12 in the holiday quarter as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 70% from -$7.0 per share seen in the same period a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 130% to $7.94 billion.

“Despite some headwinds around staffing issues, we expect United Airlines (UAL) to guide to a continued sequential improvement with capacity guided to be down in the 17-18% range in Q1, which incorporates domestic capacity down in the 1% range, while international capacity remains down 27%,” noted Sheila Kahyaoglu, equity analyst at Jefferies.

“Remaining in a Net Loss Position into Q1. We expect a continued sequential decline in CASM-ex to 11.63¢, which reflect a 9% increase vs. 2019 levels, which compares to the 13% increase we expect in Q4. Nonetheless, UAL will remain in a net loss position in Q1, before turning positive in Q2.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

TICKER COMPANY EPS FORECAST
AA Alcoa $2.5
ASML ASML Holding $4.3
CFG Citizens Financial Group $1.16
CMA Comerica $1.6
DFS Discover Financial Services $3.48
FAST Fastenal $0.36
FUL H.B. Fuller $1.06
KMI Kinder Morgan $0.27
MS Morgan Stanley $1.83
PACW PacWest Bancorp $1.06
PG Procter & Gamble $1.66
STT State Street $1.93
USB U.S. Bancorp $1.13
UAL United Airlines $-2.12
WTFC Wintrust Financial $1.56

 

Thursday (January 20)

IN THE SPOTLIGHT: NETFLIX

The California-based global internet entertainment service company NetFlix is expected to report its fourth-quarter earnings of $0.82 per share, which represents a year-over-year decline of over 30% from $1.19 per share seen in the same period a year ago.

However, the streaming video pioneer would post revenue growth of over 16% to $7.71 billion. It is worth noting that the company has beaten earnings per share (EPS) estimates just thrice in the last two years.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“Higher global broadband penetration should increase the Netflix (NFLX) addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

TICKER COMPANY EPS FORECAST
AAL American Airlines $-1.72
CSX CSX $0.42
FITB Fifth Third $0.91
ISRG Intuitive Surgical $1.01
KEY KeyCorp $0.56
MTB M&T Bank $3.24
NTRS Northern Trust $1.82
OZK Bank OZK $0.98
PPBI Pacific Premier Bancorp $0.85
PPG PPG Industries $1.2
RF Regions Financial $0.49
SASR Sandy Spring Bancorp $1.1
SIVB SVB Financial $6.29
TRV Travelers $3.77
UNP Union Pacific $2.66
WBS Webster Financial $1.11

 

Friday (January 21)

TICKER COMPANY EPS FORECAST
ALLY Ally Financial $2.0
FHB First Hawaiian $0.47
HBAN Huntington Bancshares $0.37
INFO IHS Markit $0.71
SLB Schlumberger $0.39

 

United Airlines Q4 Earnings to Improve; Omicron Spike A Risk For Aviation

The major U.S. airline company United Airlines is expected to report a loss for the eight-consecutive time of $-2.12 in the holiday quarter as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 70% from -$7.0 per share seen in the same period a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 130% to $7.94 billion.

One of the biggest risks facing the airline industry is the rising number of cases of the new Omicron coronavirus. Since COVID-19 knocked the industry to its knees in 2020, American airlines have come a long way. But the pandemic still looms large.

A new wave of sickness caused by a highly contagious virus variant, the Omicron Coronavirus, has caused chaos for a short-staffed industry. In addition to an increase in daily sick calls, winter storms have led to mass flight cancellations, according to a Reuters report.

“Despite some headwinds around staffing issues, we expect United Airlines (UAL) to guide to a continued sequential improvement with capacity guided to be down in the 17-18% range in Q1, which incorporates domestic capacity down in the 1% range, while international capacity remains down 27%,” noted Sheila Kahyaoglu, equity analyst at Jefferies.

“Remaining in a Net Loss Position into Q1. We expect a continued sequential decline in CASM-ex to 11.63¢, which reflect a 9% increase vs. 2019 levels, which compares to the 13% increase we expect in Q4. Nonetheless, UAL will remain in a net loss position in Q1, before turning positive in Q2.”

United Airlines shares traded 0.34% higher in pre-market trading on Wednesday. The stock gained over 7% so far this year after rising just over 2% in 2021.

Analyst Comments

United Airlines (UAL) is our 2022 Best Idea. They should benefit from increased international leisure demand and continued strength in domestic leisure travel. Any business travel recovery would be a boon. We expect UAL to focus on paying down debt and improving its balance sheet while maintaining strong liquid it,” noted Helane Becker, equity analyst at Cowen.

“We are maintaining our Outperform rating on the common shares of United Airlines. We believe these shares can sell at 7x our preliminary 2023 EPS estimate of $11.18 or $78 /share. Our estimate is 47% greater than the $7.59 consensus. We attribute our optimism relative to the peer group to our view that international leisure destinations will outperform domestic beginning in summer 2022 and continue into 2023 and beyond.”

United Airlines Stock Price Forecast

Nine analysts who offered stock ratings for United Airlines in the last three months forecast the average price in 12 months of $60.00 with a high forecast of $78.00 and a low forecast of $42.00.

The average price target represents a 27.93% change from the last price of $46.90. From those nine analysts, five rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $60 with a high of $95 under a bull scenario and $27 under the worst-case scenario. The firm gave an “Equal-weight” rating on the Airlines’s stock.

“Why Equal-weight? We like United Airlines’ (UAL) confidence in providing a 2023 cost guide which includes a goal to permanently reduce $2 bn of cost and at least match 2019 margins. The market is also very keen to see UAL’s go-to-market strategy on the revenue side as travelers return,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“However, the legacy network footprint is a slightly bigger overhang than its network peers and the cap structure will likely take years to normalize, which could remain overhangs on the stock.”

Several other analysts have also updated their stock outlook. BofA Global Research raised the price objective to $42 from $40. Bernstein cut the target price to $73 from $78. Raymond James lowered the target price to $75 from $78. Citigroup cut the price target to $64 from $67.

Technical analysis also suggests it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator gives mixed signals.

Check out FX Empire’s earnings calendar

Sector Themes In Play In The Markets For 2022

Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine.

Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:

  • Fed actions.
  • International conflicts (i.e., Russia and China).
  • Pandemic developments that are not currently known.

There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!

Sector theme DRIVERS FOR 2022

Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.

For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.

Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.

Let’s look at some sector themes and individual names to keep an eye on in 2022.

ECONOMIC NORMALIZATION

A long-anticipated return to a “normal” economy will continue to be a theme — we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.

5G INTERNET

The much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.

ARTIFICIAL INTELLIGENCE

In all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM.

EVs and AUTONOMOUS VEHICLES

Electric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.

While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.

MATERIALS and MINING

Gold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential.

Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.

SEMICONDUCTORS

The market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.

REAL ESTATE

Real Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.

Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.

SUMMARY

Many sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.

Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Dec-31-article.png

These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.

Let’s remain vigilant for possible market corrections and may the wind be at our backs!

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Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.

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TheTechnicalTraders.com

 

Why Delta Air Lines Stock Is Under Pressure Today

Delta Air Lines Stock Is Losing Ground After Turbulent Weekend For Airlines

Shares of Delta Air Lines found themselves under pressure after flight cancellations during the Christmas weekend highlighted the risks posed by the spread of Omicron.

Most airlines blamed staffing shortages due to coronavirus for their problems. Not surprisingly, the whole sector is under pressure today, and other stocks like United Airlines, Southwest Airlines and JetBlue are also losing ground in today’s trading session.

It remains to be seen whether this problem will be a long-term one as Christmas weekend is one of the busiest periods for the airline industry, and the situation will likely normalize in the upcoming weeks. However, the disruptions highlighted risks posed by Omicron, and investors may remain worried about similar incidents in the future.

What’s Next For Delta Air Lines Stock?

Analysts expect that Delta Air Lines will report a loss of $4.28 per share in 2021 and a profit of $2.91 per share in 2022, so the stock is trading at roughly 13 forward P/E.

However, it should be noted that earnings estimates for 2022 have been steadily declining in recent months. The reason for this decline is simple – the situation with coronavirus is not improving, while the wave of Omicron boosted risks of additional restrictions, especially for the lucrative international travel segment.

It remains to be seen whether traders will rush to buy shares of Delta Air Lines and other airline stocks after the recent pullback. While airlines should quickly adapt to new challenges as they have a significant experience of dealing with various crises, falling earnings estimates may continue to put pressure on their stocks. The good news for investors is that there is no evidence of big problems on the demand side as pent-up demand for travelling stays strong despite risks posed by the spread of Omicron.

For a look at all of today’s economic events, check out our economic calendar.

Best Stocks, Crypto, and ETFs to Watch – Visa, Shiba Inu and SPDR S&P Retail ETF (XRT) in Focus

Fears of a March 2020 reprise will impact market sentiment and price action in the new trading week, as evidenced by big moves in COVID beneficiaries and casualties during Friday’s holiday-shortened U.S. session. A contrary strategy makes more sense at this point than chasing the fearful crowd, looking for fresh sell signals on pandemic cast-offs that include Peloton Inc. (PTON) and Zoom Video Communications Inc. (ZM) while waiting for tradable lows in travel and digital transaction plays, like United Airlines Holdings Inc. (UAL) and Visa Inc. (V).

Dow component Salesforce Inc. (CRM) is the third strongest performer in the venerable index, gaining nearly 28% year-to-date. The stock broke out earlier this month above the rally peak posted after the company joined the index in August 2020 and pulled back to test new support during Friday’s rout. Tuesday’s post-market earning report should decide whether or not the breakout is sustainable, with the company expected to post a profit of $0.92 per-share on $6.80 billion in revenue.

Crypto assets are under pressure along with growth stocks after the Omicron news, illustrated by Bitcoin 10%+ decline to a 7-week low on Friday. However, lowly Shiba Inu held above Wednesday’s low during that session and has continued to trade above short-term support near $0.00003800 over the weekend. This bullish divergence could come into play because that price level also marks support at the .618 Fibonacci retracement of the powerful uptrend between October 2020 and October 2021.

Brick and mortar retailers got sold aggressively ahead of Black Friday, with popular chains that include Nordstrom Inc. (JWN) and Gap Inc. (GPS) reporting weak margins and issuing cautious outlooks. Taken together with the COVID threat, SPDR S&P Retail ETF (XRT) could offer a low risk short sale opportunity with 10% to 20% short-term downside. Better yet, the fund just failed a breakout above the January peak near 100, potentially signaling a long-term top and significant change in trend.

The Natural Gas futures contract rose 8.48% on Friday while the Crude Oil contract fell more than 13%. This bullish divergence highlights growing shortages across Europe and Asia and the potential for the long-suffering commodity to break out above the 7-year high posted in October. Cheniere Energy Inc. (LNG) looks like an excellent way to play this long-term opportunity, with the stock trading at an all-time high after breaking out above 2014 resistance in the mid-80s in September.

For a look at this week’s economic events, check out our earnings calendar.

Disclosure: the author held Visa in a family account at the time of publication. 

Are Stock Bulls Back On A Track?

Earnings beats have actually been coming in at a wider margin than average, contrary to lingering fears that supply chain disruptions, material shortages, and climbing costs would lead to disappointing Q3 results.

Q3 Earnings

The big beats now have S&P 500 companies on track to post +30% earnings growth for Q3. Most Wall Street insiders are now expecting Q4 earnings to show right around +20% earnings growth.

Today’s earnings highlights include Albertsons and State Street. Some of the big names reporting later this week include Netflix, Haliburton, Johnson & Johnson, United Airlines, and Procter & Gamble on Tuesday; and Biogen, IBM, Verizon, and Tesla on Wednesday; American Airlines, AT&T, Chipotle, Intel, Snapchat, and Southwest Airlines on Thursday.

The following week is even more highly anticipated as many of the biggest names in the stock market will be reporting.

Economic data

In economic data today, Industrial Production for September is expected to dip due to a combination of Hurricane Ida and supply chain constraints. Supply chain challenges also likely lowered builder sentiment in the October NAHB Housing Market Index due today as well. The supply-side shortages of both materials and labor continue to weigh on economic growth outlooks for the last part of 2021.

However, most bullish analysts have adjusted their 2022 growth projections higher, believing lost growth this year will be made up next year. The labor market is expected to get a boost thanks partially to the dramatic decline in Covid cases, which are down nearly -50% since early-September.

The extreme worker shortage in some sectors has already led to rapid wage growth with hourly earnings in September up +4.6%, led by an increase of nearly +11% in leisure and hospitality. That is what’s considered “sticky” inflation, meaning that it is not likely going to be reversed.

Likewise for consumer goods’ prices that have been creeping higher as manufacturers try to offset higher costs. If wage growth can mostly keep pace with inflation, bulls will likely remain less concerned that rising prices will crush economic growth. In fact, Retail Sales released Friday showed no signs of consumer spending slowing down with sales climbing +15% in September, despite obviously higher costs for many goods. The thought of the economy heating back up quickly is both good and somewhat bad.

There now seems to be more talk on Wall Street about the likelihood of two rates hikes next year rather than just one. There’s actually even some talk of perhaps three rate hikes being possible in 2022, especially if the supply-chain complications continue to create higher prices and fuel higher inflation.

The biggest wildcard right now appears to be the global energy shortage which is already pushing up costs for both consumers and manufacturers and threatens to accelerate headline inflation far beyond wage growth.

Any energy “crisis” will likely only be temporary but it still potentially translates to several quarters of slower growth than many Wall Street bulls have been penciling. If it leads to a massive surge higher in inflation in the months ahead, it also could also pressure the Federal Reserve to pull forward its timeline to begin hiking interest rates.

Technical analysis

ES ##-## (Daily) 2021_10_18 (3_38_51 PM)

SP500 futures are testing daily MA50. With the strong accumulation in this market, I will not be surprised to see a base-building above moving average. If that happens, investors will gain more confidence. Thus, we can see money flowing aggressively into the stock market again. The weakness of the USD gives additional strength for indexes. In that case, bulls will target at least 4600 (important Gann level on a daily chart).

Breaking below 4250 is a game-changer. However, in the absence of bearish macroeconomic factors, we have more chances to see a bullish scenario.

Delta Air Lines’ Earnings To Swing to Positive Territory For First Time in Seven Quarters

Delta Air Lines’ earnings per share (EPS) is expected to swing back to positive territory for the first time in seven quarters on Wednesday, more than doubling to $0.16 per share compared to a huge loss of -$3.30 per share seen in the same period a year ago.

The Airline company, which provides scheduled air transportation for passengers and cargo throughout the United States and across the world, is forecast to report revenue growth of over 170% in the third quarter to around $8.4 billion. It is worth noting that in the last two years, the airline has beaten consensus earnings estimates just three times.

“Notably, all comparisons in percentage are made to third-quarter 2019. For the third quarter of 2021, the carrier expects capacity to decline in the 28-30% band from the number reported in third-quarter 2019. The carrier anticipates total revenues to drop in the 30-35% range from third-quarter 2019 actuals,” noted analysts at ZACKS Research.

“Non-fuel unit costs in third-quarter 2021 are expected to increase in the 11-15% band from the third-quarter 2019 actuals. Fuel price per gallon in the September quarter is projected in the $2.05-$2.15 range. Capital expenditures and adjusted net debt are likely to be around $800 million and $19 billion, respectively, in the September quarter.”

At the time of writing, Delta Air Lines’ was trading 0.98% lower at $43.25 on Friday. However, the stock rose over 7% so far this year.

Delta Air Lines Stock Price Forecast

Eighteen analysts who offered stock ratings for Delta Air Lines in the last three months forecast the average price in 12 months of $55.21 with a high forecast of $67.00 and a low forecast of $45.00.

The average price target represents a 27.39% change from the last price of $43.34. From those 18 analysts, nine rated “Buy”, nine rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $67 with a high of $96 under a bull scenario and $35 under the worst-case scenario. The firm gave an “Overweight” rating on the airline’s stock.

“Why Overweight? Delta Air Lines (DAL) has some of the strongest customer satisfaction numbers among the other Legacy peers, while also commanding a higher PRASM, making it our preferred Legacy carrier. While DAL cannot escape Legacy overhangs (delayed International/corporate recovery, strained balance sheet), it should rise with the industry tide. The risk-reward looks attractive,” noted Ravi Shanker, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. In July, Bernstein raised the target price to $65 from $64. In June, Jefferies lifted the price objective to $60 from $50. In April, Berenberg upped the price target to $48 from $40.

Analyst Comments

“Airlines will report 3Q21 results later this month, beginning Oct 13 with Delta Air Lines’ release. We believe 3Q21 started strong, sagged in the middle and then finished strong as people started planning holiday trips,” noted Helane Becker, equity analyst at Cowen.

“We believe 4Q21 guidance will reflect a strong peak, likely >2019 levels while off-peak is likely to lag 2019 levels. Stocks to own include United Airlines (UAL), Alaska Air Group (ALK), Allegiant Travel (ALGT) & Southwest Airlines (LUV).”

Check out FX Empire’s earnings calendar

Southwest Airlines Lowers Q3 Revenue Guidance

Southwest Airlines Co. (LUV) is trading lower on Wednesday after warning about Q3 2021 revenue due to “close-in’ cancellations and bookings as a result of the Delta variant. The news is bearish for the broader airline industry, for two reasons. First, it tells us that leisure travelers are having second thoughts about vacations and trips to see grandma while second, it defies predictions that widespread business travel would resume in the fourth quarter.

Red Flag for Airline Industry

The airline has outperformed its peers since March 2020, with a domestically-focused schedule avoiding the gauntlet of international travel restrictions. The recovery wave reached the 2018 peak in March 2021 before reversing, unlike American Airlines Group Inc. (AAL), United Airlines Holdings Inc. (UAL), and Delta Air Lines Inc. (DAL), which stalled well below similar levels. In turn, this raises odds that rivals will follow with identical warnings in coming weeks.

According to the release, Southwest “recently experienced a deceleration in close-in bookings and an increase in close-in trip cancellations in August 2021, which are believed to be driven by the recent rise in COVID-19 cases associated with the Delta variant. Based on the assumption that COVID-19 cases remain elevated in the near-term and current revenue trends in August continue into September, the current outlook for Q3 2021 operating revenues has worsened by an estimated three to four points.”

Wall Street Asleep at the Wheel

Wall Street consensus has ignored the Delta variant, with a ‘Buy’ rating based upon 16 ‘Buy’, 3 ‘Overweight’, and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders reduce positions or move to the sidelines. Price targets range from a low of $57 to a Street-high $85 while the stock is set to open Wednesday’s session about $7 below the low target. This disconnect indicates that Main Street understands the current risks better than the analyst community.

Southwest posted an all-time high at 66.99 in December 2017 and entered a trading range that broke to the downside in February 2020, dropping the stock to a 6-year low. The subsequent uptick stalled within three points of that peak in April 2021, giving way to a correction that pieced the 200-day moving average in the 50s in July. Two tests at that level have failed while this morning’s decline is holding within a short-term trading range. Accumulation has dropped to a 52-week low, raising odds for continued downside into the lower 40s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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For a look at all of today’s economic events, check out our economic calendar.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

United Airlines Shares Slump Ahead of Q2 Earnings

United Airlines shares slumped over 5% on Monday ahead of the second-quarter earnings results, where the major U.S. airline company is expected to report a loss for the sixth consecutive time of $4.21 as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 55% from -$9.31 per share seen in the same quarter a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 250% to $5.25 billion, up from $1.48 billion a year ago.

Due to the ongoing COVID-19 crisis, the company reported losses in all four quarters, posting an average negative earnings surprises of 5.39%.

At the time of writing, United Airlines shares traded 5.19% lower at $43.60 on Monday.

United Airlines Stock Price Forecast

Fifteen analysts who offered stock ratings for United Airlines in the last three months forecast the average price in 12 months of $60.46 with a high forecast of $78.00 and a low forecast of $43.00.

The average price target represents a 36.94% change from the last price of $44.15. From those 15 analysts, four rated “Buy”, ten rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $70 with a high of $96 under a bull scenario and $30 under the worst-case scenario. The firm gave an “Equal-weight” rating on the Airlines’ stock.

Several other analysts have also updated their stock outlook. Jefferies lowered the target price to $50 from $55. Evercore ISI slashed the target price to $55 from $66. Bernstein increased the target price to $76 from $67. Cowen and company lifted the target price to $72 from $65. Berenberg upped the target price to $50 from $48.

Analyst Comments

“We like United Airlines (UAL) confidence in providing a 2023 cost guide which includes a goal to permanently reduce $2 bn of cost and at least match 2019 margins. The market is also very keen to see UAL’s go-to-market strategy on the revenue side as travelers return,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“However, the legacy network footprint is a slightly bigger overhang than its network peers and the cap structure will likely take years to normalize, which could remain overhangs on the stock.”

Increase In Covid Cases Cause Airline Stocks To Plunge

The shares of some major airline companies in the United States are down at Monday’s pre-market trading session thanks to a surge in the number of Coronavirus cases in the country.

UAL, AAL And DAL All Trading In The Red

Delta Air Lines (DAL), American Airlines and United Airlines are all in a bearish mode today thanks to the news of a surge in the number of Covid cases in the United States. At Monday’s pre-market trading session, the shares of United Airlines are down by 5%, with American Airlines also down by roughly 5% at the time of this report.

UAL stock chart. Source: FXEMPIRE

Delta Air Lines is also not left out, as the stock is down by 4.1% over the past few hours. The companies’ stocks were performing excellently in recent weeks, thanks to the rapid vaccination program put in place by the Biden administration. Travel demand has increased in recent months, with the Transportation Security Administration recording over 2 million passengers at US airports yesterday. This is the highest Covid level recorded since February 2020, weeks before the pandemic hit the United States.

Delta Variant Is Spreading

The concern amongst travelers is the spread of the Delta variant of Covid-19. The Delta Covid variant has become the dominant strain in the United States, and this is affecting the broader stock market. However, travel and hospitality stocks are usually the most affected, with airlines and hotels suffering the most over the past few months.

Following the increase in the Delta variant, some regions in the United States are reinstating some of the earlier lifted restrictions. Los Angeles, for instance, has reinstated the indoor mask mandate while the Southern Nevada Health District is asking people to also wear masks indoors as the cases increase across the state.

AAL stock chart. Source: FXEMPIRE

Year-to-date, both American Airlines and United Airlines have performed excellently. AAL began the year trading at $15 per share, but it is now up by 20% and is currently trading above $18. UAL began the year trading at $41, but after a period of growth, it is now consolidating and trades just above the $43 mark.