The beginning of the holiday season brings attention back to an airline industry heading into its busy season. From a stock market perspective, this rightly draws attention to retailers. However, investors should also pay attention to another class of equities that sees increased activity during the holiday season: airline stocks.
An estimated 55.3 million Americans will travel 50 miles away from home or more during Thanksgiving week. Of those, analysts expect about 4.45 million of those will take to the skies. They expect almost 46 million passengers to fly between Dec. 20 and Jan. 6. That comes in about 5.2% higher than 2017 levels.
High travel volumes during Christmas come as no surprise to investors. Still, this holiday travel provides much-needed revenue that will bolster some airline stocks in the weeks and months to come. Hence, investors should keep the following tickers on their watch lists:
Alaska Air Group (ALK)
Still, both the airline and ALK stock took a hit in 2018, seeing its earnings per share fall by more than half. At the time, rising oil prices, as well as competition and the costs of absorbing Virgin America, weighed on ALK. Alaska stock peaked at just over $100 per share in March 2017. From there, it steadily declined, reaching a low point of $53.39 in early 2019. However, since that time, it has trended upward. It sells for around $69 per share as of the time of this writing.
Currently, it trades at a forward price-to-earnings (PE) ratio of around 10. Moreover, with profits set to grow by an average of 20.15% per year over the next five years, it is recovering from the massive decline brought about in its purchase of Virgin.
With robust earnings growth and the former Virgin America giving it an authentic, nationwide footprint, ALK is one of the airline stocks set to resume its recovery and growth.
Allegiant Travel Company (ALGT)
Allegiant (NASDAQ:ALGT) is one of the airline stocks filling a unique niche in the airline industry. The carrier charters flights from cold-weather destinations to smaller airports in warmer areas. This so-called “ultra-low-cost” airline can also charter flights to destinations in Canada and Mexico. With millions of consumers willing to sacrifice luxuries on flights to save money, this model has proven profitable.
This growth has shown up in ALGT stock, which has enjoyed a great 2019. Like many stocks, it hit a low point in the week of Christmas 2018. From this trough of just below $100 per share, it has steadily risen throughout 2019 and now trades at just above $170 per share.
Despite this increase, investors may still have some runway to benefit from the growth of ALGT stock. It currently trades at around 10.3 times forward earnings.
Admittedly, airline stocks tend to trade below the S&P 500 average, which currently stands at around 23.1. However, analysts predict Allegiant will see average annual earnings growth of 20.7% per year over the next five years. Hence, I think investors can still benefit. As long as profit growth levels can maintain altitude, ALGT stock should continue to fly.
Copa Holdings, S.A. (CPA)
American investors tend to overlook foreign airline stocks such as Copa (NYSE:CPA), the premier airline in the tiny country of Panama. However, the carrier flies to 80 destinations throughout Latin America and the Caribbean, as well as 13 cities in the United States. Through that expanding footprint, it has become a growth name among Latin American airlines.
Like many airlines, it sells for a low forward multiple of 11.2 times earnings. However, for this valuation, Wall Street predicts its investors will see earnings increases of 18.4% this year and 23.4% in fiscal 2020.
CPA stock has benefited from a steady uptrend for about a year. It has risen since a steep drop took it from a high of just above $140 per share in the spring of 2018 to just above $67 per share by November of that year.
However, over the last year, it has steadily risen. It sells for around $107 per share at the time of this writing. Still, like with Allegiant, a low PE ratio leaves room for further growth. Moreover, investors for this year received $2.60 per share in payouts, a yield of close to 2.7%. While the benefit bounces around, it provides yet another indication that CPA stock investors can continue to profit from this large, yet under-the-radar airline.
Delta Air Lines (DAL)
Seeing a legacy carrier such as Delta (NYSE:DAL) on a holiday airline stocks list might come as a surprise to some. After all, older airlines have faced intense competitive pressure as competition has forced airlines to cut back on in-air perks and impose baggage fees.
However, Delta has successfully adapted, and the benefits have accrued to DAL stock. Delta registered double-digit average profit growth over the previous five years. For the next five, Wall Street forecasts average earnings increases of 11.36% per year.
Moreover, dividend payouts have risen annually for the last five years. For 2019, investors have received $1.61 per share in payouts, a yield of about 2.9%. As of now, this growth costs comes at a forward PE ratio of around 7.9.
Furthermore, Delta utilizes many plane types. However, it owns no 737 MAX aircraft from Boeing (NYSE:BA), insulating them from the latest crisis.
Finally, DAL stock could finally break out. The current price of around $56 per share places it at levels seen two years ago. However, in that time, the PE ratio has fallen by about 20%, while the dividend has risen by almost 60%. Delta stock will not make you rich. Still, with both profit and dividend growth set for further growth, it appears on track to continue fattening both portfolios and cash balances.
JetBlue Airways (JBLU)
At first glance, JetBlue (NASDAQ:JBLU) might seem like an unexpected choice among airline stocks. It currently trades at just over $19 per share. Since the summer of 2018, it has consistently fallen back from the $20 per share level. Given that trading pattern, many likely expect it to fall back again. For now, it may. However, profit growth and valuations continue to make the current trading pattern more untenable.
Wall Street expects the bottom line to increase by 24.5% in 2019 and 25.4% next year. Thanks to the stagnant stock price, investors can buy JBLU stock for around 7.9 times forward earnings. Price ceilings may not break easily. However, given this low PE ratio and the projected earnings increase, the current upper bound will likely not hold.
Cost-cutting has become one key priority. As Aaron Levitt mentioned, they plan to emphasize higher-margin routes and end service to some less-profitable routes. They also planned for cost cuts amounting to between $250 and $300 million by the end of 2020. Furthermore, flying Airbus (OTCMKTS:EADSY) planes instead of 737 MAX aircraft has helped JBLU sidestep a key roadblock of one of its close peers, Southwest (NYSE:LUV).
This only helps the pattern of 20%-plus annual profit growth expected to continue for JBLU stock for the foreseeable future. Moreover, once the $20 per share price ceiling breaks, JBLU should finally begin to soar.
Spirit Airlines (SAVE)
Spirit (NYSE:SAVE) has become arguably the highest-profile name in the ultra-low-cost segment. While a bare-bones flight experience and carry-on baggage fees may not win the hearts of flyers, it has earned their business as well as Wall Street accolades as one of the airline stocks to own. The airline continues its expansion across Latin America and the Caribbean. A recent order of 100 Airbus aircraft should fuel this expansion.
SAVE has seen some turbulence in recent years. Market conditions forced salary concessions to pilots last year. That hit company profits hard in 2018. However, with that salary dispute behind them, both profitability and SAVE stock itself look set to climb. Also, like JetBlue, it flies Airbus planes, insulating it from the 737 MAX crisis.
In recent years, SAVE stock has a history of bouncing back from the low-to-mid $30s per share level. At the current price of around $40 per share, the move higher may have just begun. Spirit stock sells for just over 8.3 times forward earnings. Spirit’s profit growth levels remain erratic. However, over the next five years, analysts forecast average earnings growth of 9.78% per year.
As the popularity of no-frills flying grows across the Western Hemisphere, it should help SAVE stock move to higher altitudes.
United Airlines (UAL)
United (NASDAQ:UAL) has become another legacy carrier that figured out how to compete against multiple discount carriers. Like Delta and the surviving legacy airline stocks, it has found a way to adapt and survive in a field that has seen most of its legacy peers either stop flying or become absorbed by larger carriers.
UAL stock registered negligible profit growth over the previous five years, just 2.05% per year on average. Thanks to changes, Wall Street forecasts that that average will rise to 14.58% for the next five. Despite that massive improvement, the earnings multiple has not moved higher with the growth. The forward PE ratio of around 7.3 comes in well below the average valuation of just over 9.5.
Another thing that has not improved yet is stock price growth. UAL stock has traded in a range since the summer of 2018. Unfortunately, for the carrier, it had become partially dependent on the 737 MAX aircraft. This has forced the cancellation of dozens of flights per day.
However, both United and its peers expect to resume 737 MAX flights in January. Once it can return to its full schedule, I think UAL stock will resume stock price growth and achieve new all-time highs.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.