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Airline sector heads south
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July 16, 1998: 2:19 p.m. ET
Wall Street cashes out of airline stocks, but analysts say sector remains strong
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NEW YORK (CNNfn) - Despite record earnings from two of the industry's leading players, airline stocks headed south Thursday on mounting investor concern that the high-flying sector may have reached its peak.
Delta Air Lines Inc. reported record net income of $362 million for the fourth quarter ended June 30, a 20 percent increase over last year.
The company's diluted earnings per share reached $4.52, up 16 percent over the same period in 1997 -- beating First Call estimates of $4.47 per share.
Apparently, though, that's not good enough for Wall Street.
Delta's stock (DAL) was off 4-11/16 at 132-7/16 on the New York Stock Exchange in afternoon trading -- taking the stock prices of its competitors down with it.
The stock slide stands in stark contrast to Wednesday's rally, where Delta's shares soared 6 to 141-7/8 on news the company was planning a 2-for-1 stock split and a $750 million buyback of its common shares.
Overall, the Dow transports index was off a sharp 56.53 Wednesday afternoon at 3,491.68.
TWA (TWA) was down 1/4 at 10-1/8 on the American Stock Exchange, and United Air Lines (UAL) was off 1-7/8 at 86-1/2 on the Big Board.
Leading the sector's decliners was AMR Corp. (AMR), the parent of American Airlines, which was down 5-3/16, more than 6 percent, at 78-5/16 on the New York Stock Exchange.
AMR posted record second-quarter earnings of $409 million Wednesday and said it would buy back another $500 million of its common stock.
Analysts said they were not surprised by the downturn in airlines sector stocks.
They said part of the reason was that investors believe airline earnings will remain strong but predictable -- not the type of stocks that momentum players typically target. The other part of the selloff they attributed to the natural ebb and flow of airline and other cyclical stocks.
"People buy these stocks anticipating earnings surprises, so even though these are great earnings, there was no real [positive] earnings surprise," said Goldman Sachs analyst Glenn Engel. "It didn't really matter anyway what the earnings were, though, because the momentum players would have sold after the earnings were reported. They buy on the rumor, sell on the news."
Engel added the fact that there was no real earnings surprise is magnifying the sell-off.
He called for a 20 percent increase in the airline's next quarterly results, and a 15 percent to 20 percent jump in the following quarter.
Results in 1999, he noted, will likely fall below 1998 levels. 
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