The airlines trade as if 2015's the peak year. That's how you get American (AAL) to trade at five times earnings, United (UAL) at six times earnings and Delta (DAL) at eight times earnings.
Frankly, those are extraordinarily inexpensive stocks unless next year we are going to see: 1) a huge swing in oil, 2) a dramatic drop off of passengers and 3) a huge onslaught of competition that will cause ticket prices to go down. Or perhaps we get all three?
I find that scenario very unlikely. There's no real competition for routes; they've been eliminated in many cases by mergers that were allowed between two competitors.
Oil can run, but I don't think it can run so fast and so far that it will hurt earnings too badly. At the same time, travel seems like it's in a secular increase even as the strong dollar can bring with it less tourism -- it is too expensive to fly here for many.
It's always disturbing to see downgrades like we saw today for all three of these stocks by Deutsche Bank, which said that this month could be weak because of a strong dollar.
It's disturbing because if it is a trend then maybe the numbers are wild high for the year, but it is even more disturbing if this is just some sort of trading call and no more.
I like these stocks. I am sensitive to the idea that the March numbers really will be bad. But if we don't get number cuts I think that these go higher, not lower, because they have become cash machines and they will begin to return that cash to shareholders in even bigger ways than they have, which will make them all buys when the March smoke clears.
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