Ally Schmidt

In this series, we’ll explore the key highlights of the major US airlines’ 4Q15 earnings. In 4Q15, the stocks of most legacy players outpaced those of regional carriers.

In this part of the series, we’ll look at the outlook for General Dynamics’ individual business segments. General Dynamics has four major business segments.

Growing capacity is necessary for revenue growth. However, capacity expansion that exceeds demand growth can lead to declining utilization.

Delta Air Lines (DAL) expects to generate more than $7 billion–$8 billion of operating cash flow and ~$4 billion–$5 billion of free cash flow. It plans to reduce its adjusted net debt to $4 billion by 2020.

Out of the 18 analysts tracking Southwest Airlines (LUV), 11 analysts (61.1%) have a “buy” recommendation on the stock versus 71% analysts that had a “buy” recommendation on Southwest in 2Q16.

Adding newer destinations Alaska Air Group (ALK) added a number of new routes in the second quarter of 2015, such as: Boise to Reno Eugene to San Jose, California Los Angeles to Baltimore Los Angeles to Gunnison–Crested Butte Los Angeles to Monterey Los Angeles to San Jose, Costa Rica Portland to Austin Seattle to Charleston […]

Alaska Air Group saw the highest surge in traffic demand and was the leader in capacity growth, with a 6.4% YoY increase in its capacity in July 2015.

2016 has been the worst start for the S&P 500 in the past eight years. US airlines also saw a bad start. The Dow Jones U.S. Airline Index has fallen 4% YTD.

Alaska Air Group’s (ALK) consensus 12-month target price is $80.55, which indicates a 15.2% return potential on October 10, 2016.

Airline capacity utilization is measured using the passenger load factor, which is calculated by dividing traffic numbers by capacity numbers.

According to a study by Expedia, airfares fell by about 5% in 2015. Despite this decline, passenger complaints are on the rise. Many consumer leaders also lobbied for airfare reductions.

For 3Q16, analysts are estimating Priceline’s revenues to grow by 16.6%, which would be higher than the 12% growth the company saw in the second quarter.

FedEx continues to see growth in the global economy. It expects the US GDP to grow by 2.4% in 2015 and by 2.6% in 2016, driven by increased consumer spending.

According to a Bloomberg consensus, JetBlue Airways is expected to see earnings per share (or EPS) of $0.6 in the quarter, compared to EPS of $0.58 in 3Q15.

According to Bloomberg’s consensus, out of the 14 analysts tracking American Airlines (AAL), 71.4% have “buy” recommendations.

With total sales of $45,358 million in 2013, Lockheed Martin is the largest defense contractor in the world. The other major defense contractors in the world include The Boeing Company and Raytheon Company.

In the last week of June 2017, Qatar Airways’ CEO, Akbar Al Baker, disclosed the carrier’s interest in buying a 10% stake worth $808 million in American Airlines through the open market.

In 2015, most airline stocks have fallen, and the NYSE ARCA Airline Index (XAL), which is composed of the major US airline stocks, has also tumbled as much as 13.5% year-to-date.

In 2013, Lockheed Martin clocked revenues of $45.4 billion. Of its revenues, 82% come from the U.S. government, around 17% from international customers, and 1% from other U.S. commercial customers.

For 2Q16, analysts are estimating 4.2% revenue growth for Alaska Air Group (ALK), which is slower than the 6.2% growth in 1Q16.

The Trans-Pacific Partnership is expected open cross-border trade between member nations by increasing imports and exports and cutting taxes and tariffs.

Priceline’s consensus 12-month target price is $1,479.55, which indicates an 11.5% return potential.

Analysts are estimating 2Q16 revenue of ~$1.7 billion for JetBlue Airways (JBLU), which is a year-over-year increase of 2.2%.

This introduction to Boeing (BA) provides basic information about the aerospace manufacturing leader’s products, services, and third-quarter performance.

American Airlines (AAL) stock rose almost 0.94% on September 12, the day of its traffic release.

Online travel industry leaders like Priceline (PCLN) and Expedia (EXPE) have a mixed relationship. They’re partners as well as competitors.

Raytheon’s Integrated Defense Systems segment saw marginally lower sales during the year due to lower sales across most of its major programs such as the Patriot program.

UPS’s Domestic Package segment provides an array of guaranteed ground and air package transportation services, depending on the customer’s need.

Out of the 14 analysts tracking American Airlines (AAL), 50% have a “buy” recommendation on the stock as compared to the 71.4% that had a “buy” rating in 2Q16.

Delta Air Lines (DAL) stock fell 3.5% after its traffic release on September 5, 2017. The negativity has spread to other players.

Decreasing load factors across the airline industry mean that airlines are not able to fill up their seats as fast as they are adding seats. This justifies investor fears of overcapacity.

General Dynamics’ total backlog grew from $45.9 billion at the end of 2013 and to $72.4 billion at the end of 2014. This was a whooping 58% increase.

For 1Q17, analysts are estimating Hilton’s (HLT) revenue to fall 25% to $2.1 billion.

The demand for air travel experienced considerable growth in the month of August, driven by traditional vacation travel as well as lower fares of major air carriers.

For October, SAVE was ranked third on the metric according to the Department of Transportation. That’s a huge improvement since Spirit has historically been last.

Hotels make up a significant part of Ctrip’s revenues—39% of total revenues in 2Q16—similar to OTA peers Priceline, Expedia, and TripAdvisor.

In November 2017, Southwest Airlines’ (LUV) traffic grew 3.4% year-over-year (or YoY). This growth was higher than its capacity growth of 2.5% YoY in the same month.

The airline industry is capital-intensive, with high levels of depreciation and amortization and varying degrees of debt and operating leases. To neutralize these factors, we use the EV-to-EBITDA ratio to value airline stocks.

On April 4, 2016, Alaska Air Group (ALK) announced its acquisition of Virgin America for $57 per share in cash, which amounted to $2.6 billion.

Effective January 2015, FedEx changed its pricing policy for all of its FedEx Ground packages less than 3 cubic feet to a “dimensional weight pricing” mechanism.

Currently, CCL’s forward EV/EBITDA ratio stands at 10.4x. CCL enjoyed its highest valuation of 63x during September 2006. It reached its lows of ~5x in November 2008.

FedEx Ground is being driven by the booming growth in e-commerce, and it contributed to 35% of the company’s revenues but 44% of its profits.

The economic upturn since 2009 has improved growth prospects for the courier companies. This coupled with improving industry margins has led to improving industry valuations.

Passenger yield declined by 8% year-over-year for August 2015 to 15.3 cents from 16.6 cents. This is the highest decline since the start of the year.

Currently, American Airlines (AAL), Southwest Airlines (LUV), and Alaska Air Group (ALK) are all trading at ~5x their forward EV-to-EBITDA multiples.

UPS has addressed complex supply chain issues such as transportation, distribution, and international trade and brokerage services by offering a variety of services.

The Intelligence, Information and Services segment was almost in line with last year. So were the operating income and margins, all of which saw marginal declines.

For 3Q16, TRIP’s revenue per shopper fell 12%. This is slightly better than the 24% decline seen in 1Q16 and the 19% decline seen in 2Q16.

RQPR rose 2.1% in 2015 to 1.5 euros compared to 1.4 euros in 2014. For the nine months ended in September 2016, RQPR fell 6.0%.

In this series, we’ll assess Boeing’s (BA) key indicators for 4Q16. We’ll look at analyst estimates for BA’s 4Q16 performance and assess whether the indicators justify the estimated earnings results.