Stockranks Upgrades & Downgrades: Do falling oil prices help airlines?

Are falling oil prices good news or bad news for stocks in the transport sector? Profits can rise as fuel costs fall. Furthermore, lower transportation costs can mean that holidays become cheaper for consumers. In theory, this could drive sales upwards as airlines benefit from higher passenger numbers.

So why does Flybe, the leading regional airline in Europe, have a falling StockRank? Furthermore, are StockRanks falling across the transport sector?

Flybe

Flybe's interim report, released in November, was hardly an early Christmas present for investors. Passenger numbers were down by 6% and capacity was down 16%, as the company sold its Gatwick routes to easyJet. And to add insult to injury, a recent Supreme Court ruling in the UK extended airlines' liability and required Flybe to pay out £6m in compensation for flight delays. To round it off, Flybe revealed a worse than expected operating loss of £12.8m, and the company's EPS figures for the last twelve months have been negative (-12 pence per share).

Perhaps it is hardly surprising that shares in Flybe have fallen by 12% over the last three months. Brokers are also pessimistic about next year's performance. The EPS estimates has fallen from 8.5p (in Jan 2014) to 0.4p (Jan 2015) partly because brokers anticipate delays in the delivery of sub-leased aircraft.

The share price's downward trend, coupled with the broker downgrades, have both placed downwards pressure on Flybe's MomentumRank, which has fallen to 26 (see image). Furthermore, Flybe'sStockRank has fallen from 41 to 38 over the last seven days.

Darting ahead?

While Flybe has been going through a troubled patch, other transport companies, namely Dart, Ryanair Holdings and easyJet have amongst the highest StockRanks in the UK market.

The leisure airline and logistics group, Dart, has a StockRank of 100. Christmas did come early for Dart's shareholders when the company released its interim report back in November. Group revenues increased by 28% to £1.12 billion. Furthermore, net profits increased by 15% to £36 million, underpinned by continued growth in the leisure travel business. While passenger numbers were down for Flybe, they were up for Dart. Indeed, the growth that Dart has enjoyed in leisure travel reflects a 12% increase in total passengers flown and a 13% increase in seat capacity.

Are other airlines taking off?

Dart is not the only airline that has been having a good year. Ryanair has a StockRank of 93 and has beaten the market by nearly 30% over the last three months. Ryanair's interim report (released November 2014) revealed that profits had risen by more than 30%. The company attributes this rise partly to their strategy of raising forward bookings and improving customer experiences through the company's 'Always Getting Better' scheme. Furthermore, profits have grown as Ryanair's fares increased by 5% and traffic grew by 4%.

EasyJet's StockRank is 98. Earnings grew by around 13% in 2014, supported by a series of digital and revenue management initiatives, alongside continued revenue per seat growth. EasyJet is the largest short-haul carrier in the UK with a market share of around 20%. It has a 19% ROCE - higher than 85% of UK companies. EasyJet also has a Piotroski F-Score of 7 out of 9 - indicating that the company is improving its capacity to service long-term debt, and is also more profitable than it was last year.

Conclusions - DYOR

As always - these are not share tips and should not be read as investment advice. Please do your own research before investing. Do feel free to leave any comments below.

Safe investing,

Alex

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