Why Investors Should Avoid Air Transport Services (ATSG) Now

·3-min read

Air Transport Services ATSG is currently mired in multiple headwinds, which we believe, have made it an unimpressive investment option.

Let’s delve deeper.

Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for earnings for the current-quarter and current year has been revised 10.7% and 13.7% downward, respectively, over the past 60 days. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.

An Underperformer: The Air Transport Services stock has declined 32.9% in a year’s time compared with its industry’s 13.6% fall in the same time frame.

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Weak Zacks Rank and Style Score: Air Transport Services currently carries a Zacks Rank #4 (Sell). Moreover, ATSG’s current Growth Style Score of C highlights its unattractiveness.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bearish Industry Rank: The industry to which ATSG belongs, currently has a Zacks Industry Rank of 214 (of 250 plus groups). Such an unfavorable rank places ATSG in the bottom 14% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.

A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.

Other Headwinds: Air Transport Services reported lower-than-expected earnings per share in the fourth quarter of 2022. Moreover, management issued a dim EPS guidance for 2023 which is expected in the range of $1.85-$2. In 2022, ATSG's adjusted earnings per share was $2.28.

The downbeat guidance for 2023 was due to headwinds like inflation-related woes, reduced ACMI (aircraft, crew, maintenance & insurance) services operations and higher interest costs.

The increase in expenses on fuel due to the current oil price surge is hurting ATSG's bottom line.

Evidently, operating costs increased 24.8% in 2022 with fuel expenses rising 58.7%. ATSG’s debt load is bothersome too.

Stocks to Consider

Some better-ranked stocks in the Zacks Transportation  sector are American Airlines AAL and Alaska Air Group ALK , both carrying a Zacks Rank #2 (Buy), presently.

American Airlines is being aided by the improved air-travel-demand scenario. Owing to upbeat air-travel demand, operating revenues at AAL in fourth-quarter 2022 increased 39.3% year over year. Buoyant air-travel demand is also reflected by the total operating revenue increase of 16.6% from the fourth-quarter 2019 (pre-COVID-19) levels despite 6.1% lower capacity.

Driven by soaring demand on healthy bookings, management expects total unit revenues in the first quarter of 2023 to be roughly 24-27% higher than the level recorded in first-quarter 2022. The AAL stock has evidenced the Zacks Consensus Estimate for first-quarter 2023 earnings being revised upward by 100% in the past 60 days.

Alaska Air too is being aided by the buoyant air-travel-demand scenario. On the back of upbeat air-travel demand and favorable pricing, Alaska Air reported better-than-expected earnings per share in fourth-quarter 2022.

Alaska Air expects to boost its fleet and also workforce in 2023 to meet the anticipated high demand. ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals. The Zacks Consensus Estimate for ALK’s current-year earnings has improved 12.4% over the past 60 days.

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American Airlines Group Inc. (AAL) : Free Stock Analysis Report

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