November 21, 2018
West Jet back on Radar
West Jet released disappointing earnings on October 30, 2018, posting net earnings of only $0.40 per diluted share during the quarter compared to $1.15 per share in last years quarter. This sent the stock dropping from over $20 to under $18. Today the stock can be purchased for $18.60 and further improving conditions could see the stock move higher.
Operating expenses had the biggest impact on recent quarterly earnings as fuel costs increased 37% from the prior year. This resulted in more than $100 million in additional expenses. There were also increased expenses in salaries (8%), sales and marketing (10%), rates and fees (14.5%), maintenance (15.9%), and other categories (34.1%). Aircraft leasing was one of the only operating expenses which was lower year over year, saving the company 18.6%. Revenue on the other hand was only up a modest 3.8%.
After reading above you might wonder why West Jet would be back on my radar list? The answer is simple, oil. In the past month oil prices have seen dramatic drops due to supply and demand. If you are running an airline this is great news as fuel costs account for 28% of all expenses during the quarter. Oil prices have dropped from highs of $75 in October to $54 today, representing a decrease of 28%. For next quarter if West Jet captures half of the drop in fuel cost savings, this would represent about $48-million. Those savings alone with have doubled the earnings for West Jet during their recent quarter.
West Jet also declared a $0.14 dividend which is payable to shareholders on record December 12, 2018. This dividend represents an annual yield of 3%. Whether you are looking for capital gains or hungry for dividend yielding stocks, West Jet could offer the opportunity for both. If oil prices remain under pressure leading into the next earning cycle, expect to see some fuel savings for airline companies.
At the time of writing this article I hold no position in West Jet but may initiate one in the next 24 hours.