Cheap fuel helps lift travel-related stocks

Select resort operators and airlines are reaping the benefits.

Michael Leonard 14 January, 2016 | 6:00PM
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We are painfully aware of companies and industries that have been directly or indirectly hurt by the precipitous drop in the price of oil from more than US$100 per barrel in autumn 2014 to about US$31 currently. But what about industries that benefit from cheap fuel? Intuitively, the travel industry must be enjoying lower costs, and a review of the list of U.S. equities highly rated by Morningstar's CPMS division would seem to confirm this thesis.

Among the apparent beneficiaries of lower travel costs is Vail Resorts Inc. (MTN), which develops real estate and owns and operates luxury resorts in Colorado, California, Nevada and Utah. Following Vail's Dec. 7 report for the three months ended Oct. 31, its earnings surprise is 5.4% and its quarterly earnings momentum is 20%. These figures inspired all six equity analysts who cover MTN to raise their estimate of fiscal 2016 earnings following the earnings release.

Consequently, investors in growth- and momentum-oriented U.S. equities should be attracted to Vail Resorts. Vail also rates highly for those seeking equities sporting attractive dividend growth, given its 2.1% expected dividend yield, 0.8 five-year beta and its multi-year record of healthily growing earnings and dividends.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
American Airlines Group Inc17.18 USD5.53Rating
Delta Air Lines Inc36.17 USD7.87Rating
Southwest Airlines Co45.22 USD6.27Rating
Vail Resorts Inc333.71 USD1.17

About Author

Michael Leonard

Michael Leonard  Michael Leonard, CFA, is chief equity strategist at Morningstar Canada.

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