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June 9, 2015


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VALUATION WATCH: Overvalued stocks now make up 62.35% of our stocks assigned a valuation and 24.55% of those equities are calculated to be overvalued by 20% or more.  ALL sectors are calculated to be overvalued--with eight at or near double digits.


--Losing Altitude?

Airlines Face Challenging Environment

This week is proving to be a bad one for airline stocks as negative earnings forecasts and slowed expansion plans have seen investors dumping shares of major carriers. So far this week, we have seen most of the major US carriers provide guidance that predicts weaker demand, excess capacity, and lower profits for the rest of 2015.

Gary C. Kelly, Southwest (LUV) Chairman of the Board, President, and Chief Executive Officer, noted that despite "Solid traffic and revenue trends [in May] . . . and [strong growth in] markets under development . . . with weaker than expected economic growth, we continue to evaluate our 2016 capacity plans with a current intent to cap our [Available Seat Miles (ASM)] growth to approximately six percent, year-over-year."

American Airlines (AAL) cut its forecast for Q2 unit revenue and pretax margins and forecast a decrease in revenue-per seat-mile of 6%-8%.

United Continental Holdings (UAL) noted this week that it also expects unit revenue for this quarter to decline--at a rate of 5%-6%

Delta Airlines (DAL) made similar statements to the media and President Ed Bastian noted that the company sees several routes where there is excess capacity present and noted that, like Southwest, the airline is re-evaluating expansion places for later in the year.

Airlines had been on a roll for the past few years, with hedging strategies--and then lower prices--for fuel, added fees for--and profits from-- everything from blankets and pillows to carry on bags, and better labor relations leading to good profits and filled aircraft. Even if passengers found that the new conditions destroyed much of the romance associated with flying, share holders were reaping the benefits.

But, now it appears as though many carriers may be in need of some new gimmicks and revenue sources. Fuel costs remain relatively low, but they are running out of new ways to boost the bottom line. Planes are often @80% full. Investors have noticed the situation, and a sell off has been underway since last month, when shares of Southwest, American, Delta, and United lost @ $10 billion as executives began to sound the alarm about the weakening outlook. Shares in the majors took a beating yesterday as well, with double-digit losses now the case across the board when compared to just one -month ago.

Below is our valuation data and some other metrics for the largest US carriers. As you can see, our models still find the companies relatively undervalued, but it will take some time for adjusted earnings estimates to make their way through our systems. Many of these companies remain ranked a "BUY" or "STRONG BUY" at the moment, as the system still ranks them as better investment targets that other stocks in our data base. They still have decent one-year forecast return estimates--for the most part.

Ticker
Company Name
Market Price
Valuation
Last 12-M Retrn
Avg 5-Yr Retn (%)
P/E Ratio
AAL
AMERICAN AIRLINES
39.86
-9.85%
-0.75%
36.54%
5.29
ALK
ALASKA AIR GROUP
62.53
-9.45%
27.02%
34.23%
12.61
DAL
DELTA AIR LINES
40.75
-7.45%
2.10%
23.01%
11.21
LUV
SOUTHWEST AIRLINES
36.11
-25.05%
36.52%
21.83%
13.05
UAL
UNITED CONTINENTAL HOLDINGS
51.73
-17.83%
16.59%
20.07%
6.03



As a bonus to our Newsletter readers,
we are offering a FREE DOWNLOAD of one of our Stock Reports

Read our Complete Detailed Valuation Report on Southwest Airlines HERE.

Below is today's data on LUV:

Southwest Airlines is a major domestic airline that provides primarily shorthaul, high-frequency, point-to-point, low-fare service. Southwest operates over Boeing 737 aircraft in numerous cities. Southwest has the lowest operating cost structure in the domestic airline industry and consistently offers the lowest and simplest fares. Southwest also has one of the best overall Customer Service records.

VALUENGINE RECOMMENDATION: ValuEngine continues its STRONG BUY recommendation on SOUTHWEST AIR for 2015-06-08. Based on the information we have gathered and our resulting research, we feel that SOUTHWEST AIR has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE Company Size and Momentum.


ValuEngine Forecast
 
Target
Price*
Expected
Return
1-Month
36.59
1.33%
3-Month
36.00
-0.30%
6-Month
36.20
0.24%
1-Year
41.90
16.03%
2-Year
32.46
-10.10%
3-Year
22.57
-37.51%

Valuation & Rankings
Valuation
25.05% undervalued
Valuation Rank(?)
90
1-M Forecast Return
1.33%
1-M Forecast Return Rank
100
12-M Return
36.52%
Momentum Rank(?)
88
Sharpe Ratio
0.80
Sharpe Ratio Rank(?)
87
5-Y Avg Annual Return
21.83%
5-Y Avg Annual Rtn Rank
89
Volatility
27.18%
Volatility Rank(?)
64
Expected EPS Growth
21.69%
EPS Growth Rank(?)
61
Market Cap (billions)
24.51
Size Rank
95
Trailing P/E Ratio
13.05
Trailing P/E Rank(?)
85
Forward P/E Ratio
10.73
Forward P/E Ratio Rank
85
PEG Ratio
0.60
PEG Ratio Rank
60
Price/Sales
1.30
Price/Sales Rank(?)
60
Market/Book
4.13
Market/Book Rank(?)
31
Beta
0.92
Beta Rank
53
Alpha
0.25
Alpha Rank
88

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The ValuEngine View Newsletter is the product of a sophisticated stock valuation model that was first developed by ValuEngine's academic research team. It utilizes a three factor approach: fundamental variables such as a company's trailing 12-month Earnings-Per-Share (EPS), the analyst consensus estimate of the company's future 12-month EPS, and the 30-year Treasury yield are all used to create a more accurate reflection of a company's fair value. A total of eleven additional firm specific variables are also used. In addition, the portoflio uses top picks from our Forecast Model. In essence, the portfolio is constructed with the best picks from our main propiretary models

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  VE View vs. S&P 500 Index Past Five Years
VE View
S&P 500
Ann Return
24.78% 14.56%
Ann Volatility
22.28% 12.35%
Sharpe Ratio
1.11 1.18
Sortino Ratio
1.88 1.53
Max Drawdown
-34.94% -11.14%

  The ValuEngine View Newsletter is derived from the ValuEngine Aggressive and Diversified Growth BenchmarkPortfolio Strategies. These strategies are the product of ValuEngine's academic research team and combine cutting-edge financial analysis and portfolio construction techniques with real-world Wall St. know how. 

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ValuEngine Market Overview

Summary of VE Stock Universe
Stocks Undervalued
37.65%
Stocks Overvalued
62.35%
Stocks Undervalued by 20%
12.78%
Stocks Overvalued by 20%
24.55%

ValuEngine Sector Overview

Sector
Change
MTD
YTD
Valuation
Last 12-MReturn
P/E Ratio
-0.14%
1.03%
13.89%
21.35% overvalued
15.21%
29.95
-0.39%
-0.62%
4.58%
16.73% overvalued
-3.83%
21.32
-0.76%
0.10%
7.64%
13.98% overvalued
6.41%
31.06
-0.44%
0.44%
4.20%
12.59% overvalued
2.85%
24.15
-0.64%
-0.68%
0.62%
12.05% overvalued
7.35%
25.47
-0.42%
-1.14%
2.42%
11.75% overvalued
0.11%
22.26
-0.14%
-0.38%
3.60%
10.85% overvalued
0.67%
24.49
-0.56%
0.15%
8.65%
9.62% overvalued
0.21%
27.38
-0.37%
-0.06%
3.18%
6.20% overvalued
2.31%
17.46
-0.97%
-1.20%
0.49%
5.36% overvalued
-34.57%
24.35
-0.86%
-0.65%
3.98%
4.71% overvalued
-6.41%
16.70
-1.13%
-0.25%
1.09%
4.49% overvalued
0.87%
18.94
-0.43%
0.15%
3.67%
3.42% overvalued
-4.72%
20.40
-0.59%
-0.71%
1.16%
2.25% overvalued
-14.20%
24.16
-0.17%
-1.00%
1.21%
1.84% overvalued
-6.02%
21.64
-1.16%
0.12%
2.47%
0.74% overvalued
0.14%
24.08

 

 

 

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