Analysts see Cathay Pacific, Daimler Truck upside amid headwinds
European airline stocks fell Tuesday after oil prices rallied on renewed military escalation in the Middle East, with analysts issuing a range of assessments across the auto and transport sector in notes covering Cathay Pacific, Daimler Truck, Fraport, and JD Logistics. The Dow Jones Industrial Average stood at 52,498.64.
Deutsche Lufthansa and Air France-KLM traded 2.25% and 2.1% lower, respectively, while International Consolidated Airlines Group traded 1.6% lower and Wizz Air traded 2% lower. Ryanair, Jet2, and TUI traded 1.45%, 1.2%, and 1.4% lower, respectively. EasyJet shares were down 0.2%.
“With missiles landing once again across the Middle East there will be worries that the confidence of the traveling public will be dented yet again, just as there were hopes that flight patterns would start to get back to normal,” Wealth Club’s Susannah Streeter said.
HSBC Research analysts said Cathay Pacific’s first-half results could offer a positive read-across from Delta Air Lines and Korean Air, both of which recently reported earnings. Premium demand was a standout story for Delta, while Korean Air’s second-quarter passenger yields grew with the surge in Middle East traffic diversion, the analysts wrote in a note. These trends are relevant for Cathay, which has a premium-heavy, long-haul network, they said. Strong cargo-growth trends support the expectation of robust cargo contribution in the first half for Cathay, the analysts added. Cathay’s first-half results could drive a full-year earnings upgrade, and accelerating fuel pass-through should sustain earnings momentum in the second half, HSBC said. The bank retains a buy rating on Cathay with a target price of HK$15.30. Shares were 0.1% lower at HK$13.15.
Deutsche Bank analyst Nicolai Kempf said Daimler Truck’s second-quarter margin probably benefited from stronger volumes and product mix. “We understand that Trucks North America experienced supply chain issues, which hampered higher volumes. However, we expect these to be resolved, allowing for lost volumes to be compensated in Q3,” Kempf wrote in a note. The bank looks for an adjusted EBIT margin of 7.8% at Trucks North America in the quarter. Mercedes-Benz Trucks is expected to benefit from higher volumes, which could be partially offset by higher input costs as well as ramp-up costs of a global parts center. Deutsche Bank expects a strong quarter in terms of cash generation. Daimler Truck shares rose 0.3%.
Fraport’s weak first-half traffic results have increased pressure on its earnings outlook, MWB Research analyst Oliver Wojahn said in a research note. The subdued passenger volumes at Frankfurt Airport coincide with the opening of Terminal 3, which raises fixed costs, Wojahn said. Domestic traffic remains constrained by factors including airline disruptions, elevated fuel prices, and geopolitical tensions, while international growth has been uneven, the analyst added. Although management still considers its full-year financial guidance achievable, Wojahn said the softer outlook for Frankfurt’s higher-margin passenger traffic leaves the company’s targets increasingly challenging to meet. Shares in the German airport operator traded 2.8% higher at 71.3 euros.
JD Logistics’ second-half margins could be supported by the recent moderation in oil prices, Citi analysts Brian Gong and Alicia Yap said in a note. Surging fuel costs over the quarter ended June likely dragged on the Chinese logistics service provider’s second-quarter margins, partially offset by efficiency improvements, they said. The company previously noted that additional fuel-related costs accounted for close to 1% of revenue, the analysts said. Meanwhile, they expect JD Logistics’ organic revenue growth to sustain at a mid-single-digit percentage, thanks to factors such as stronger performance from its JD Retail business. Citi retains its buy rating, citing the stock’s undemanding valuation, and a target price of 18.00 Hong Kong dollars. Shares last closed at HK$12.72.