Although inflation is down from its highs, policymakers believe it remains ‘too high’ and have signaled further rate hikes as opposed to their previously announced pause. Given this backdrop, fundamentally sound momentum stocks American Airlines Group Inc. (AAL), Air Canada (ACDVF), and Accel Entertainment, Inc. (ACEL) might be wise investments in June.
According to the latest Bureau of Labor Statistics data, U.S. inflation is coming off its sky-high prices. The Consumer Price Index (CPI) increased 0.1% over the last month and 4% year-over-year in May. However, as it remains twice above the 2% target level, most FOMC participants have agreed on additional interest rate hikes toward the year-end.
In support of this, Fed governor Michelle Bowman added that while inflation has declined substantially, ‘it remains far too high’ and additional policy rate increases will be necessary to bring inflation down to our target over time.
On top of it, a still-booming job market and a resilient economy are intensifying the Fed’s aggression. Nonfarm payrolls increased 339,000 for May, beating Dow Jones estimates for growth of 190,000.
Thus, for those looking to hedge against market uncertainty this year, the above-mentioned stocks possess robust fundamental strength, solid growth, and strong momentum. So, it could be wise to invest in them now.
Furthermore, investors’ interest in momentum stocks is evident from the iShares Edge MSCI USA Momentum Factor ETF’s (MTUM) 3.1% returns over the past six months.
American Airlines Group Inc. (AAL)
AAL operates as a network air carrier under the American Eagle brand. It provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C., and partner gateways in London, Doha, Madrid, Seattle/Tacoma, Sydney, and Tokyo.
On February 14, in recognition of AAL’s industry-leading commitment to reducing emissions operation-wide, the company was named the 2023 Eco-Airline of the Year by Air Transport World (ATW). The airline also appeared on the Dow Jones Sustainability North America Index in 2022 for the second year in a row, improving its score by more than 20% year-over-year.
AAL’s total operating revenues increased 36.9% year-over-year to $12.19 billion for the fiscal first quarter that ended March 31, 2023. Its operating income came in at $438 million, compared to an operating loss of $1.72 billion in the year-ago period. Also, its net income and EPS, excluding net special items, came in at $33 million and $0.05, versus a net loss and loss per share of $1.51 billion and $2.32 in the prior-year period, respectively.
Analysts expect AAL’s revenue and EPS to increase 2.1% and 95% year-over-year to $13.70 billion and $1.48 in the fiscal second quarter (ending June 30, 2023), respectively. Moreover, it surpassed the EPS estimates in each of the trailing four quarters, which is excellent.
Over the past three years, its EBITDA and EBIT have increased at CAGRs of 12.6% and 25.2%, respectively, while its total assets have grown at a 4.5% CAGR in the same period.
Shares of AAL have gained 25.1% over the past six months and 28.1% year-to-date to close the last trading session at $16.30. It is trading higher than its 50-day and 200-day moving average of $14.38, indicating an uptrend.
AAL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Growth, Value, Momentum, and Quality. In the 28-stock A-rated Airlines industry, it is ranked #9. To see additional POWR Ratings of AAL for Stability and Sentiment, click here.
Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF offers domestic, U.S. transborder, and international airline services under the brand names Air Canada Vacations and Air Canada Rouge. It directly provides scheduled service and air freight lift to more than 180 airports across six continents.
On June 14, ACDVF announced the strategic expansion of its international network with the addition of new, non-stop flights from its hub at Vancouver International Airport (YVR) to Singapore. The carrier's new Vancouver-Singapore flights should complement ACDVF's daily service between Canada and Singapore, broadening its presence in fast-growing international markets.
Also, this new addition is expected to assist the company in enhancing the customer experience across North America by offering convenient access to Southeast Asia, Southern India, and Western Australia via Singapore.
In the same month, the company announced a strategic distribution and retailing partnership with Sabre Corporation (SABR), a leading software and technology provider powering the global travel industry. The new multi-year distribution agreement provides a full range of NDC-sourced Air Canada content for Sabre-connected travel agencies.
Further, this agreement enables SABR to provide agencies with significantly improved content and offers from ACDVF, including its dynamically priced fares and new ancillary services. This should bode well for the company in terms of boosting its overall demand and revenues.
During the first quarter that ended on March 31, 2023, ACDVF’s operating revenues increased 89.9% year-over-year to C$4.89 billion ($3.70 billion). Its adjusted EBITDA increased significantly from the year-ago value to C$411 million ($311.33 million), while its net income came in at C$4 million ($3.03 million), compared to a net loss of C$974 million ($737.79 million) for the year-ago period.
Also, its free cash flow came in at C$987 million ($747.64 million), reflecting a significant increase from the same period last year.
The consensus EPS estimate of $1.51 for the third quarter (ending September 2023) represents a 65.6% improvement year-over-year. The consensus revenue estimate of $4.49 billion for the next quarter indicates a 14.7% increase from the prior-year period. Also, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
In addition, its total assets have increased at a CAGR of 2.5% over the past three years, while its levered FCF improved at a 166.5% CAGR in the same period.
ACDVF’s shares have gained 32.6% over the past year to close the last trading session at $17.91, higher than its 50-day and 200-day moving averages of $15.54 and $14.67, respectively.
It’s no surprise that ACDVF has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and a B for Value, Momentum, and Quality. It is ranked #4 of 28 stocks within the same A-rated industry.
In addition to the POWR Ratings we’ve stated above, we also have ACDVF’s rating for Stability and Sentiment. Get all ACDVF ratings here.
Accel Entertainment, Inc. (ACEL)
ACEL is a leading distributed gaming operator in the United States. It is involved in the installation, maintenance, and operation of gaming terminals; redemption devices that disburse winnings and contain ATM functionality; and other amusement devices in authorized non-casino locations.
In the fiscal first quarter (ended March 31, 2023), ACEL’s total net revenues increased 48.9% year-over-year to $293.21 million. Its operating income grew 30.5% year-over-year to $27.67 million, while its non-GAAP net income increased 19.6% from the year-ago value to $21.06 million. Also, its adjusted EBITDA came in at $46.12 million, up 30.9% year-over-year.
Analysts expect ACEL’s revenue to increase 22.5% year-over-year to $279.08 million in the fiscal second quarter (ending June 30, 2023), while its EPS is expected to be $0.19 in the same period. For the fiscal year 2024, the EPS and revenue are projected to reach $0.88 and $1.15 billion, reflecting 11.8% and 2.2% year-over-year increases, respectively.
Moreover, the company surpassed revenue and EPS estimates in three of the trailing four quarters, which is promising.
Its net income and EBIT have improved at CAGRs of 110% and 86.4% over the past three years, respectively. Likewise, its EPS has grown at a 92.9% CAGR over the same period.
The stock has gained 31.7% over the past six months and 30.5% year-to-date to close the last trading session at $10.05, higher than its 50-day and 200-day moving averages of $9.29 and $8.91, respectively.
ACEL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. ACEL also has an A grade for Sentiment and a B for Value, Momentum, and Quality. Out of 28 stocks in the Entertainment - Casinos/Gambling industry, it is ranked #4.
Click here to see the additional ratings for ACEL (Growth and Stability).
What To Do Next?
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AAL shares were trading at $16.35 per share on Thursday afternoon, up $0.05 (+0.31%). Year-to-date, AAL has gained 28.54%, versus a 14.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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