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Jet Fuel Shortages Send Airline Stocks Lower

The big four airlines saw shares fall as fuel delivery delays cause disruptions

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Sydnee Gatewood
Jul 27, 2021

Summary

  • While no flights have been canceled, delays are expected through mid-August.
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After American Airlines Group Inc. (

AAL, Financial) warned that it may have to add stops to certain flights due to delays in fuel deliveries, several major airline stocks recorded declines on Tuesday morning.

The industry suffered as a whole last year as the Covid-19 pandemic restricted travel, forcing many airlines to lay off or furlough their employees as well as seek bailouts from the government. Their stocks also took a beating. While many see a recovery ahead as demand picks back up, the shortages of jet fuel may not bode well for the sector.

The carrier said multiple companies have experienced the delays due to a lack of truck drivers, trucks and fuel supply. While the shortage has mostly affected western U.S. cities with smaller regional airports, other stations across the country have also begun to report disruptions.

To combat the problem, American noted flights will carry additional fuel in to airports that need it, a procedure known as tankering, or add fuel stops.

No flights have yet been canceled as a result of the shortage, but delays are expected to continue through mid-August.

The big four airlines, which are American, Delta Air Lines Inc. (

DAL, Financial), Southwest Airlines Co. (LUV, Financial) and United Airlines Holdings Inc. (UAL, Financial), were all lower on Thursday morning, presenting bullish investors with a potential buying opportunity.

American Airlines

With the stock down 2.72%, American Airlines (

AAL, Financial) has a $13.98 billion market cap; its shares were trading around $21.48 on Tuesday with a price-sales ratio of 0.69.

The GF Value Line shows the stock is significantly overvalued based on historical ratios, past performance and future earnings projections.

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The Fort Worth, Texas-based airline has a GuruFocus financial strength rating of 2 out of 10. As a result of issuing approximately $15.5 billion in new long-term debt over the past three years, the company has insufficient interest coverage. The Altman Z-Score of -0.04 warns the company could be in danger of going bankrupt.

The company’s profitability fared better, scoring a 5 out of 10 rating despite having negative margins and returns on equity, assets and capital that underperform a majority of competitors. American also has a low Piotroski F-Score of 2, indicating operating conditions are in poor shape. Despite recording a loss in operating income and declines in revenue per share over the past several years, the company has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in American,

PRIMECAP Management (Trades, Portfolio) has the largest stake with 6.88% of outstanding shares. Pioneer Investments (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also own the stock.

Delta Air Lines

Posting a 1.97% decline, Delta Air Lines (

DAL, Financial) has a market cap of $26.24 billion; its shares were trading around $40.85 on Tuesdaywith a price-book ratio of 20.48 and a price-sales ratio of 1.43.

According to the GF Value Line, the stock is significantly overvalued currently.

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The airline, which is headquartered in Atlanta, has a GuruFocus financial strength rating of 3 out of 10 on the back of a weak Altman Z-Score of 0.06, indicating it could be at risk of bankruptcy.

The company’s profitability scored a 6 out of 10 rating despite having negative margins and returns that underperform over half of industry peers. Delta also has a low Piotroski F-Score of 1. Despite recording a decline in revenue per share over the past several years, it still has a one-star predictability rank.

With a 3.38% stake, PRIMECAP is the company’s largest guru shareholder. Other top guru investors include Pioneer,

Steven Cohen (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Ray Dalio (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).

Southwest Airlines

Decreasing 1.54%, Southwest (

LUV, Financial) has a $30.4 billion market cap; its shares were trading around $50.98 on Tuesday with a price-book ratio of 3.14 and a price-sales ratio of 3.15.

Based on the GF Value Line, the stock appears to be significantly overvalued.

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The discount airline based in Dallas has a GuruFocus financial strength rating of 4 out of 10. As a result of issuing approximately $8.3 billion in debt over the past three years, it has weak interest coverage. The Altman Z-Score of 1.52 warns it could potentially face bankruptcy.

The company’s profitability fared a bit better with a 6 out of 10 rating even though its margins and returns are negative and underperform a majority of competitors. Southwest also has a low Piotroski F-Score of 3 and the one-star predictability rank is on watch as a result of recording losses in operating income and declining revenue per share.

PRIMECAP is the company’s largest guru shareholder with a 9.97% stake. The

T Rowe Price Equity Income Fund (Trades, Portfolio), Pioneer, Simons’ firm, Bacon, Jones, Jeremy Grantham (Trades, Portfolio), Dalio, Joel Greenblatt (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) also have positions in Southwest.

United Airlines

Falling 2.41%, United Airlines (

UAL, Financial) has a market cap of $15.65 billion; its shares were trading around $48.27 on Tuesday with a price-book ratio of 3.2 and a price-sales ratio of 1.03.

The GF Value Line indicates the stock is significantly overvalued currently.

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The airline, which is headquartered in Chicago, has a GuruFocus financial strength rating of 3 out of 10. As a result of issuing approximately $19 billion in new long-term debt over the past several years, the company has weak interest coverage. The Altman Z-Score of 0.22 warns the company could be in danger of going bankrupt.

The company’s profitability scored a 5 out of 10 rating on the back of negative margins and returns that are underperforming a majority of industry peers. United also has a low Piotroski F-Score of 2. Despite recording operating income losses and declines in revenue in recent years, it has a one-star predictability rank.

PRIMECAP is the company’s largest guru shareholder with an 8.47% stake. Pioneer, Bacon, Jones and Ainslie also own United’s stock.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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