Airlines stocks have been losing altitude lately. Because they have great cash-flow generation and several return a large amount of capital, though, some investors are no doubt wondering if now’s the time to buy. There are a number of different names, but for this article, I wanted to take a look at the largest in the industry.
I’m looking at Delta Air Lines, Inc. (NYSE:DAL), Southwest Airlines Co (NYSE:LUV), United Continental Holdings Inc (NYSE:UAL) and American Airlines Group Inc (NYSE:AAL) — in that order, based on market cap.
The airlines are a bit like Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). Despite healthy profits, the stocks get no respect when it comes to valuation. However, unlike Ford and GM, all four airlines have solid growth for both the top and bottom lines.
I think it should also be noted that Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) owns significant stakes in all four of these companies. Additionally, I believe Buffett’s only airline stocks are these four holdings. With that in mind, how do they look?
Comparing the Airline Stocks
| Market Cap | Revenue Growth 2018 | Revenue Growth 2019 | Earnings Growth 2018 | Earnings Growth 2019 | Yield | P/E | PEG | |
| DAL | $36.1B |
7.3% |
4.4% |
16.4% |
18.1% |
2.5% |
8.8 |
0.63 |
| LUV | $30.9B |
4.3% |
6.4% |
22.6% |
17.9% |
1.2% |
12.3 |
0.69 |
| UAL | $29.3B |
7.6% |
5.4% |
14.5% |
18% |
x |
9.2 |
0.48 |
| AAL | $18.5B |
7% |
3.9% |
1.4% |
21.6% |
1% |
7.3 |
0.67 |
Above, I’ve put together a table of all of the airline stocks we’re discussing. It’s got this year’s and next year’s revenue and earnings growth, as well as yield and valuation based on 2018 earnings. In bold is the company that has the best numbers for the given category.
So what’s the takeaway? Oddly enough, I actually feel that DAL looks the most attractive among these four airline stocks.
The only category DAL leads in (aside from market cap) is dividend yield. Paying out 2.5%, it’s more than double the next highest yield, which comes from LUV. Last quarter, DAL paid out three times its dividend payment in stock repurchases. Management said the company is sticking with its long-term goal to return 25% of cash flow to investors. That’s great news that investors should like to hear.
What’s more, DAL has the second-best revenue growth this year, second-best earnings growth in 2018 and 2019 and has the second-lowest valuation. For those wondering, DAL’s PEG ratio — which measures a stock’s valuation against its growth — of 0.63 is second-best to UAL’s 0.48.
While DAL doesn’t flat-out win any these categories aside from capital return, its consistency is something to admire. With AAL’s valuation, trading at just 7.3 times this year’s earnings, and its big earnings growth expectations for 2019, it could have been the most attractive. However, when you see its chart you’ll see why it’s missing some luster.
LUV has good earnings and revenue growth both years, but is much more expensive than DAL and has a lower yield. Likewise, UAL has similar growth to DAL with a slightly higher valuation and no yield.
Delta just seems to have the best combination of yield, growth and valuation of these four airline stocks.
Trading the Airline Stocks
Generally speaking, the airline stocks are showing several bottoming signs. Either support is holding or some names are putting in higher lows. But, either way, they’re not all falling anymore, which is a good sign.
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Delta has been chopping between $48 to $56 for almost a year now. Now, near the support side of the channel, investors can step in with an attractive risk/reward ratio.
Using a shorter time frame, DAL was previously finding support near $51. If DAL can’t push through this level, it doesn’t bode well for its share price. If it can, channel resistance near $56 is back in sight. The MACD (green circle) is flipping bullish, another good sign for bulls.
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United has a good-looking chart, at least considering the airline stocks group. It’s putting in a series of higher lows, but is coming into resistance. If this trend-line of support gives way, along with the 200-day moving average, short-term investors should consider stopping out.
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Doing its best to break out of a sharp downward channel, Southwest is trying to put its futile run to an end. $50 is clear support, but if LUV can close near $53, and preferably closer to $54, shares could take flight.
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American has the worst-looking chart. Share are in a sharp descending channel and significant support may not come into play until $33.50 to $34. It could take its time getting there, but unless AAL gets out of this bearish channel, I want to avoid the name.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
