Stock Screen: Air Transport Stocks With High Earnings Growth Potential

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 |  Includes: BRS, LUV
by: Value Line

Summary

In this screen we feature Bristow Group and Southwest Airlines, two stocks with strong earnings growth in the Air Transport Industry.

Bristow Group provides helicopter services to transport personnel and cargo from onshore bases to offshore drilling rigs, platforms, and other installations.

Southwest is the largest low-cost carriers operates over 3,400 flights daily and carries the most domestic passengers of any U.S. airline.

By: Eugene Varghese

Earnings growth remains a broad indicator of potential success for many companies in the investing world. Historical growth trends are often used to indicate value prospects for both the near- and long-term outlook. While earnings should not always be the sole indicator for unlocked potential, as investors, the goal remains to find stocks that are well positioned to churn out increasing profits over time.

The Air Transport industry consists of various types of airliners, including passenger, cargo, and helicopter-based servicers, both industrial and commercial. The industry remains mostly seasonal, with business picking up mid-year for commercial airliners, and during the holiday season for cargo. However, it remains fairly volatile, as company profits are highly vulnerable to the overall macroeconomic environment, including fluctuations in oil prices. That said, pricing leverage and cost-cutting efforts have helped a few companies stand out.

This week we ran a screen to identify companies within the Air Transport sector that possess high earnings growth potential. Two of the air-transport providers we selected within our screen results (see below) are Bristow Group (BRS) and Southwest Airlines (LUV). Both of these companies have had over 80% share-net growth over the past year, a feature which stands out of all the companies covered within the industry.

Bristow Group

Bristow Group provides helicopter services to transport personnel and cargo from onshore bases to offshore drilling rigs, platforms, and other installations. The company operates in most major offshore oil and gas producing regions of the world, including the U.K., Gulf of Mexico, Nigeria and the North Sea, and. With recent contract wins in Europe and West Africa, prospects look bright for the near term.

The company recently won a contract for U.K. Search and Rescue operations, as well as new contracts in Australia, and have deployed more aircraft to its operating fleet in these areas. While this has elevated near-term costs, management has done a solid job maintaining operating leverage by cutting the fleet in low-growth regions, including the Gulf of Mexico and certain parts of Asia. Additionally, Bristow has also achieved margin improvements through the introduction of more efficient large aircraft in its European, Australian, and North American business units. The company recently reported fiscal first-quarter adjusted net income growth of 30% over the prior-year period, showcasing solid growth on the bottom line and providing investors with some optimism.

For Bristow's long-term outlook, the recently completed acquisition of Cougar Helicopters, a Canadian-based company which marks its entry into the Atlantic-Canada market, augurs well for prospects two to three years out. While risks remain, particularly with new safety regulations being imposed, as well as macroeconomic factors, Bristow Group remains well positioned to battle headwinds as they arise, considering its solid financial position and strong pricing leverage in certain locations.

Southwest Airlines

One of the world's largest low-cost carriers, Southwest Airlines, based in Dallas, Texas, operates over 3,400 flights daily and carries the most domestic passengers of any U.S. airline to over 95 destinations. The company, which uses a point-to-point transit model rather than using a central hub, recently bolstered its fleet through the acquisition of AirTran Airways, which is currently being integrated into its operations.

Since the start of 2014, the price of LUV has advanced over 50%, and more than three-fold since the start of 2012. The company reported June-quarter year-over-year earnings growth of 53%, mostly attributed to sales growth in the passenger and freight segments, as well as stronger pricing power in the U.S. Effective cost-control measures, coupled with continued revenue growth, provide optimism for Southwest's near-term outlook. In addition, management is looking to expand outside the U.S., particularly in the Caribbean, with the fleet acquired from the recent AirTran Airways transaction.

One concern for this particular market is heightened competition and continued consolidation. Larger airlines, such as Delta Air Lines (DAL) and United Continental Holdings (UAL), have been acquiring smaller, domestic carriers to expand their routes and implement low-fares with more focus on ancillary fees to generate revenues. This could hamper Southwest's long-term growth prospects.

However, with a strong balance sheet, Southwest Airways is poised for additional long-term growth through various acquisitions and route expansion. Additionally, Southwest Airlines' ability to prudently manage invested capital helped produce a 17.1% pre-tax return on invested capital in the second quarter. With favorable cash settlements from fuel derivative contracts, the airliner should be able to drive healthy margins for both the near- and long-term periods.

Company Name

Ticker Symbol

EPS Growth 1-Year

Bristow Group

BRS

106.36

Southwest Airlines

LUV

87.5

United Cont'l Hldgs.

UAL

78.62

Delta Air Lines

DAL

71.58

Spirit Airlines

SAVE

62.42

Copa Holdings S.A.

CPA

31.02

JetBlue Airways

JBLU

30

Allegiant Travel

ALGT

18.72

Alaska Air Group

ALK

14.16

WestJet Airlines Ltd.

WJA.TO

14.05

SkyWest

SKYW

13.13

United Parcel Serv.

UPS

1.77

Hawaiian Hldgs.

HA

-2.97

FedEx Corp.

FDX

-23.4

Atlas Air Worldwide

AAWW

-25.15

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Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.