The U.S. Global Jets ETF (NYSEArca: JETS) has taken its lumps recently, but expectations that the airline industry will post record profits this year could be the catalyst to lift the lone airline exchange traded fund.
On Monday, the International Air Transport Association (IATA) “announced an upward revision of its 2015 industry outlook to a $29.3 billion net profit. On expected revenues of $727 billion, the industry would achieve a 4.0% net profit margin. The significant strengthening from the $16.4 billion net profit in 2014 (re-stated from $19.9 billion) reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices, and a major appreciation of the US dollar,” according to Briefing.com.
JETS is trading lower by more than 3% today, but that does not mean there is not upside to be had with the ETF, which debuted at the end of April.
“IATA’s earnings projection would see carriers retain $8.27 for every passenger carried and represents a 4 percent margin on industry-wide revenue forecast to slip 0.7 percent to $727 billion due to the stronger dollar,” reports Christopher Jasper for Bloomberg.
That robust profit outlook for airline stocks coincides with low valuations. “Analysts expect revenue growth to decelerate sharply to just 2.3% in 2015 from 23.6% last year, but think earnings growth will surge to 98.6% from 27.1%. The P/E of 7.7 is near early April’s 19-year low of 7.3, and its 55% discount to the market is at a 14-year low,” according to Yardeni Research. [Why the new Airline ETF Could be a Success]
JETS’ underlying index shows a forward price-to-earnings ratio of about 9. In contrast, the S&P 500 index is trading near a 18.6 P/E.