China Southern Airlines is a Stock that Offers Value

Eagle Eye Opener

By John Ransom

China Southern Airlines (NYSE:ZHN), an ADR traded on the NYSE, could hold appeal to Investors who are searching for low valuation with room for share-price appreciation because of a low price-earnings (P/E) ratio.

With indexes making all-time highs but the U.S. market recently showing signs of weakness, high-potential companies such as China Southern Airlines are in short supply. However, the global marketplace offers more chances to find good values as trade shifts from one continent to another.

It is very unusual to find companies with both stock price momentum and good value, as a short-term trade or a long-term investment.

The company is trading near its 52- week high of $43.35 at about $37.42. Yet it still sports a nifty P/E ratio of 12.42. With a market cap of $11 billion, it’s one of the larger of the smaller airlines. But companies of similar size and markets, such as Alaska Air (NYSE: ALK), trade at somewhat higher P/E ratios. ALK trades at almost 13 times earnings per share.

China Southern Airlines is trading at 9.63 P/E, based on the mean of analysts’ projections for next year, according to Marketwatch.

Airlines, especially in Asia, are benefiting from accelerating global travel and, importantly, stable oil prices. Airlines tend to thrive in a stable fuel price environment. A key reason is that fuel expenses are airlines’ biggest variable cost.

There are a few developments that could propel future growth.

“China Southern Airlines Co. Ltd. and Air China Limited are merging their airline cargo operations,” analysts at Zacks report. “This merger among the country’s largest airline cargo operators will create Asia’s biggest freight transport company. The development was reported by the official Xinhua news agency, which was quoting a high ranking official from the country’s civil aviation administration.”

Exclusive  Smart Money Is Entering the Booming Marijuana Sector

While Zacks notes that Air China likely will accrue the most benefit in this merger of cargo operations, China Southern has twice the market capitalization. The company has increased its operating cash flow, but also has some debt.

However, China Southern does pay a modest dividend yield of 1.84%, which reflects a stable financial position.

The Bangkok Post reported that global freight has surged after languishing during Asia’s mini-downturn.

“Improved world trade helped the global air freight market surge nearly 13% in May,” reported the Bangkok Post. The global air freight market is “more than triple” the average growth rate of the last five years. The record growth reflects the robust revival of air cargo, which had languished in previous years, analysts said.

With growth in the 5 percent range for developing markets in Asia, air cargo could provide a huge lift for ZHN.

American Airlines recently purchased a $200 million dollar stake in China Southern, according to Reuters. China Southern also recently announced plans for a secondary offering to raise $1.9 billion for the purchase of new aircraft and working capital. That offering should improve the company’s debt-to-equity ratio and fortify its financial strength for future growth.

On the technical side, the company recently bounced off its 52-week high of $43.35 with an opportunistic correction of almost 10 percent.

The one-year chart looks impressive with the company trading slightly below the simple moving average of $41.03. That means that short-term traders on the long side might have some opportunity here. But the good value is on the long-term future of the company.

Exclusive  ‘Harvey,’ Heroes and Market Bravery

The charts reflect a company that is growing its top line revenues and looks poised to start dropping those results to the bottom line.

There is has been a dearth of news since the company announced its Aug. 7 dividend. The lack of news and the company’s new secondary offering likely are responsible for the correction in its stock price.

There are 22 analysts following the company with about 12 hold recommendations and five sell recommendations, according to an analysis by MarketWatch. That means that there is room for continued momentum in this stock.  Two or three changes of heart by analysts as the company performs could propel the stock price significantly higher.

It is rare to find a company that offers momentum and value at the same time. China Southern presents a very unusual convergence of circumstances. The company offers a low P/E, good price movement, good news, good dividend and possible growth acceleration in its key cargo business.

Like most such opportunities, if probably won’t last that long. The recent correction might provide both traders and long-term investors a window seat of opportunity.

—————————————-

John Ransom writes for StockInvestor.com.

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
previous article

This week’s Alpha Algorithm recommendation returns us to The Boeing Company (BA) -- one of the world’s major aerospace firms. Recall that you were stopped out of Boeing (BA) on Aug. 9 at $234.30 for a 25.78% gain. Founded over a century ago in 1916 and based in Chicago, the company operates in three principal segments: commercial airplanes, military aircraft and missiles, and space and communications.

Related Posts

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE