CEA

Delta Air Lines Speaks of Industry Fare Pressures

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Image Source: Colin Brown By Brian Nelson, CFA Delta Air Lines (DAL) reported disappointing second-quarter results on July 11 with both revenue and non-GAAP earnings per share coming in lower than expected. The company put up record June quarter revenue, which reached $15.4 billion on an adjusted operating basis, up 5.4% from the same period a year ago, but the Street was looking for more. Earnings per share of $2.36 also missed the consensus forecast. Though airlines have largely rationalized capacity in recent years, fare pressures are starting to weigh on performance. We maintain our view that airlines are not long-term investments given their leverage to a cyclical economy and volatile jet fuel prices. Management had the following to say about … Read more

Delta Reports Strong March Quarter; Airline Stocks are Too Risky for Our Taste

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Image Source: Colin Brown By Brian Nelson, CFA On April 10, Delta Air Lines (DAL) reported solid results for its quarter ending in March. On an adjusted basis, operating revenue came in at $12.6 billion (up 6%), while adjusted operating income came in at $640 million with an operating margin of 5.1%. Adjusted pre-tax income was $380 million, revealing a pre-tax margin of 3.0%. Adjusted earnings per share came in at $0.45 per share, while the company hauled in adjusted operating cash flow of $2.5 billion. Free cash flow was a robust $1.4 billion, while its adjusted debt to EBITDAR came in at 2.9x, down modestly from the end of 2023. Return on invested capital was 13.8% on a trailing … Read more

Boeing In Negative Headlines Again; Part of 737 Max Fuselage Blows Out During Commercial Flight

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  Image: Boeing’s shares have been quite volatile the past couple years. By Brian Nelson, CFA On January 6, Boeing (BA) received some more bad news. Part of a fuselage installed on one of its new eight-week old 737 Max 9 aircraft blew out on an Alaska Airlines (ALK) flight. There were no reported injuries because of the mishap, but understandably passengers were undoubtedly shaken up. Some posted videos of the experience. Boeing had been working hard to get back on track with customer perception of the safety of its 737 MAX line-up, and we view the incident as yet another hiccup in the firm’s relations with the public. Key Boeing supplier Spirit AeroSystems (SPR) installed the part on the … Read more

Booking Holdings Is a Net-Cash-Rich, Free-Cash-Flow Generating Powerhouse!

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Image: Booking Holdings remains an asset-light, free-cash-flow generating powerhouse. By Brian Nelson, CFA On November 2, Best Ideas Newsletter portfolio holding Booking Holdings (BKNG) reported excellent third-quarter results with revenue advancing 21.3% and non-GAAP earnings per share coming in ahead of the consensus forecast. People around the world continue to book travel and accommodations as pent-up demand from the COVID-19 pandemic continues to showcase itself in Booking Holdings’ results. Gross travel bookings advanced 24% (21% on a constant-currency basis) in the quarter on a year-over-year basis, and the firm converted this strong demand into a 51% increase in net income. We like the asset-light, free-cash-flow generating nature of Booking Holdings, and we continue to believe it belongs in the Best … Read more

Best Idea Booking Holdings Soars!

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Image: Booking Holdings’ free cash flow conversion is about as good as it gets. The company remains a key idea in the Best Ideas Newsletter portfolio. Image Source: Booking Holdings By Brian Nelson, CFA We initiated a position in Booking Holdings (BKNG) in the Best Ideas Newsletter portfolio in June due in part to its extremely attractive valuation at that time, of which we highlighted graphically in this April 19 note. Booking Holdings’ price-to-fair value disconnect was rather large back in April following a huge fair value estimate increase around that time. Shares of the company have now surged past our fair value estimate of $3,164, as indicated in post-market trading following its fantastic second-quarter 2023 results, and we’re sticking … Read more

Chinese Stocks Bludgeoned!

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Image: Large cap Chinese equities are now back to levels first reached more than 15 years ago on a price-only basis, to levels first attained in early 2006. By Brian Nelson, CFA Successful investing is as much about selecting big winners such as Exxon Mobil (XOM) and Chevron (CVX) as it is about avoiding big losers – and wow have Chinese stocks been bludgeoned! The iShares China Large-Cap ETF (FXI) traded down nearly 10% on October 24, 2022, putting its 5-year declines at a whopping 50%+, on a price-only basis. The FXI is now back to levels, on a price-only basis, first reached at the beginning of 2006, more than 15 years ago. We don’t include any Chinese ADRs in … Read more

Recent Data Indicates US Consumer Spending Holding Up Well, Online Sales Surging

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Image Shown: As of this writing, the S&P 500 (SPY) appears ready to end 2020 on a high note, supported by the resilience of the US consumer. By Callum Turcan The ongoing coronavirus (‘COVID-19’) pandemic accelerated the shift towards e-commerce, and that change has long legs. Retailers that previously invested in their digital operations and omni-channel sales capabilities were able to capitalize on this shift while those that relied heavily on foot traffic were hurt badly. Numerous retailers went under in 2020 including J.C. Penney Company Inc (JCPNQ) and Neiman Marcus. Holiday season shopping data indicates that US consumer spending was frontloaded and grew modestly in 2020, aided by surging e-commerce sales, which advanced nearly 50% on a year-over-year basis. … Read more

Boeing’s Financials Are Absolutely Frightening

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By Brian Nelson, CFA On November 18, 2020, Boeing (BA) announced that the US Federal Aviation Administration (FAA) withdrew its order that had grounded its 737-8s and 737-9s (737 MAX) that had been involved in two terrible accidents during the past few years, a Lion Air flight that killed 189 people and an Ethiopian Airlines jet crash that claimed the lives of 157 more. We’ll never forget these tragedies and the impact on the families and the aviation industry, more generally.   In January 2017, we had added Boeing to the Dividend Growth Newsletter portfolio, but we had removed it March 16, 2018, prior to the unfortunate and high-profile accidents that occurred several months after. During the short time it … Read more

United’s Passenger Debacle An Immaterial Investment Consideration

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Image Source: Business Insider  The major airlines in the US have done a fantastic job capitalizing on the ongoing upswing in air travel demand, but their economically-sensitive business models remain the most operationally-leveraged out of any industry group in our coverage. This should be investors’ biggest concern: A downturn in the global economy and competitive pricing pressures are far greater worries for investors than United’s recent passenger debacle. However, as with many news-oriented items (as opposed to materially-relevant, investment-related items), United’s misstep is making headlines in a big way. Though the footage in this article is appalling, investors in airline stocks have much more important things to worry about, in our view. By Brian Nelson, CFA The airline industry has … Read more

Warren Buffett Is Back Into Airlines, Should You?

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Warren Buffett has changed his mind about airline stocks… In this 10-minute podcast, the Valuentum analyst team talks all about the hazards of the airline business model from substantial operating leverage to the risks of volatile jet fuel costs to bankruptcies and beyond. The team also highlights the long-term passenger growth prospects of the sector, and recent consolidation that has brewed a more optimistic tone from industry observers. To view Valuentum’s updated YouTube page, please see here. Ticckerized for airline-related equities around the globe. Brian Nelson, CFA: The worst sort of business is one that grows rapidly requires significant capital to engender the growth and then earns little or no money. Think airlines. There’s a durable competitive advantage that has proven … Read more