- Air Transport Services Group (ATSG): The world’s largest aircraft lessor offers one of the best profit margins in the airline industry.
- COPA Holdings (CPA): Robust top-line and bottom-line growth make this airliner a great investment ahead of lifting travel demand.
- Allegiant Air (ALGT): An enhancing load factor and rapid revenue growth should push this stock lagger on higher grounds.
- Alaska Air Group (ALK): The airliner is fairly valued and has a reasonable profitability profile, making it a buy ahead of rebounding leisure demand.
- Southwest Airlines (LUV): A strong cash position and a leading position in the U.S. airline market are positive catalysts for LUV stock.
- Delta Air Lines (DAL): The transatlantic air travel leader has high debt, but the bottom line is on a recovery path.
- SkyWest (SKYW): The profitable stock lagged the industry year-to-date (YTD) and trades at 60% of its book value.
In the past year, airline stocks were struck by the travel restrictions triggered by the novel coronavirus pandemic. More recently, rising jet fuel prices triggered the Russian invasion of Ukraine lifted airline operating costs, pushing air travel fares higher.
The sector is, however, rebounding as the omicron variant looks to be fading out. In addition, travel demand ahead of the summer holidays is bourgeoning, and a handful of companies just dropped the mask requirement for their flights. With that, airline carriers are expected now to return to profitability. In turn, this provides a solid catalyst for airline stocks, which are ready to reach pre-Covid trading levels.
Nonetheless, the airline industry has already begun this move. The U.S. Global Jets ETF (NYSEARCA:JETS), a fund tracking the performance of the airline sector, is up more than 5% YTD. In the meantime, the broader market — measured by the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) — is down nearly 7% over the same period.
With this in mind, let’s dive in and take a closer look at seven airline stocks that will likely continue to fly higher.
|ATSG||Air Transport Services Group||$32.84|
|ALK||Alaska Air Group||$58.27|
|DAL||Delta Air Lines||$43.04|
Airline Stocks to Buy: Air Transport Services Group (ATSG)
Air Transport Services Group (NASDAQ:ATSG) is the world’s largest lessor of freighter aircraft and engages in the provision of airline operations and aircraft maintenance to the cargo and package delivery industries. Overall, ATSG stock is up 11.4% YTD despite missing fourth quarter of 2021 earnings per share (EPS) estimates by 2 cents to 52 cents per share.
Furthermore, Air Transport is set to continue to benefit from the fast-paced cargo demand. Recently, ATSG put an order on 29 A330-300P2F retrofitted aircrafts. Mike Berger, chief commercial officer of ATSG said that these aircrafts “…already have customer deposits toward future leases for half of these 29 converted freighters,” displaying a fertile demand in the cargo industry.
Collectively, ATSG ranks as one of the most profitable airline stocks. While net sales are expected to accelerate in 2022 to $2.01 billion, the bottom line is estimated to shrink rapidly this year, down 28.2% year-over-year (YOY) to $176 million. Despite this steep deceleration, ATSG is estimated to deliver a high-profit margin of 8.88% in 2022.
Moreover, ASTG has a fit financial structure. With a projected net debt of $1.23 billion in 2022, Air Transport has a low leverage ratio of 1.93 times, leaving it plenty of space to seek new opportunities. In addition, the company has a low valuation, trading at only 5.7 times forward enterprise value (EV) on earnings before interest, taxes, depreciation, and amortization (EBITDA), but is less attractive in terms of 2022 price-earnings (P/E), with a 2022 ratio of 16.2 times.
COPA Holdings (CPA)
COPA Holdings (NYSE:CPA) stock is down moderately since the beginning of the year, losing 1.6% YTD. The Panama-based company is an international airline carrier, offering passengers, cargo, and mail transportation services in Latin America.
CPA stock released dwindling monthly traffic figures in March 2022. Passenger traffic, measured by revenue passenger miles (RPM), decreased by 6.8% compared to March 2019. Yet, COP’s load factor lifted by 150 basis points compared to pre-pandemic levels to 84.8%.
Topline growth is forecasted to accelerate significantly this year up to $2.52 billion. And with the challenges of the Covid-19 pandemic appearing now to be behind us, COP’s bottom line is estimated to surge this year to $20 million and deliver a profit margin of 7.95%.
While net debt is projected to rise moderately in 2022 — up 12.6% year-on-year to $661 million — COP’s indebtedness level is controllable, with a tiny leverage ratio of 1.09 times. Thus, COP stock has attractive financials compared to its peers, making it a great investment ahead of bouncing summer travel demand.
Airline Stocks to Buy: Allegiant Air (ALGT)
At its core, Allegiant Air (NASDAQ:ALGT) provides low-cost air transportation and related travel services to its customers. And just like its airline peers, since the beginning of the year, ALGT stock has struggled, plunging about 12%.
However, Allegiant’s bookings recently picked up some momentum. After finishing February 2022 with a load factor of 77.8%, the load factor is trending upward in March, “with several weeks exceeding 90 percent booked loads, marking the first time [Allegiant has] seen loads at this level since the onset of the pandemic.” This positive outlook should provide tailwinds to the airline which has underperformed the airline industry.
Additionally, the firm’s top line is estimated to grow rapidly this year. Revenues are forecasted to appreciate 41.9% to $2.25 billion. On the other side, net income is expected to decrease 30.26% to $118 million in 2022, but the airliner should continue to maintain a positive profit margin of 4.71% over the year.
Analysts anticipate a rapid net debt expansion in 2022, up 90.2% to 1.06 billion this year, which will lift Allegiant leverage ratio to 2.67 times. In the meantime, the rapidly growing airline company will be hit by higher operating and fuel costs, which will push free cash flow into negative territory.
Despite ALGT stock falling more than 10% since thae start of the year, the fast-growing airline trades at a premium compared to peers, exchanging at 10.2x 2022 EV/EBITDA and 29.3x forward P/E.
Alaska Air Group (ALK)
Alaska Air Group (NYSE:ALK)offers low-fare transportation services throughout the U.S. and serves more than 120 destinations. And when it comes to ALK stock, shares have jumped 12.8% YTD.
Alaska Air was hit by flight cancellations at the beginning of April, following a shortage of available pilots to fly scheduled routes. However, ALK’stock was not particularly impacted by these cancellations.
With these turbulences behind us, Alaska Air’s net sales are expected to grow rapidly, up 48.3% in 2022 to $9.15 billion. On the other side, net profits are forecasted to weaken over the year, down 18.6% to $389 million, offering nevertheless an attractive profit margin for the airline industry of 4.24% per year.
More importantly, Alaska Air has a strong balance sheet. Despite net debt projected to inflate to $1.55 billion in 2022, the airliner has a low expected leverage ratio of 1.19 times. The low-fare airline has a fair valuation of 6.6 times 2022 EV/EBITDA.
So, with all of that in mind, consider Alaska Air one of the top airline stocks to buy now.
Airline Stocks to Buy: Southwest Airlines (LUV)
Southwest Airlines (NYSE:LUV) is one of the biggest U.S. passenger carriers with a total market share of 20%. YTD, LUV stock is up almost 11% as share rebounded and finished in the postive in five of the last six trading sessions.
With that in mind, LUV is set for additional gains after the company announced that it added additional flights beginning in early June to cope with increasing leisure demand. With this constructive travel backdrop, LUV’s net sales are expected to advance robustly this year, up 48.6% to $21.8 billion, providing support for its shares. However, the bottom line of the company should deteriorate this year, as net income is forecasted to decrease 25.4% to $729 million.
Despite this slowdown, LUV stock has a comfortable expected cash position of $2.4 billion in 2022, one of the stronger financial structures in the industry. LUV stock should continue to benefit from its leading exposure to U.S. travel markets. In addition, Southwest has a relatively low forward EV/EBITDA multiple of 9.21 but trades at a stretched 2022 P/E ratio of 35.6.
Delta Air Lines (DAL)
Delta Air Lines (NYSE:DAL) advanced moderately over the year, climbing 4.02% to $41.95 per share. Delta Air Lines is an international passenger and cargo carrier with a leading presence on transatlantic flights.
Delta recently published Q1 2022 financial results, reporting an operating loss of $783 million and a net loss of $940 million over the quarter, due to rising operating costs and climbing fuel expenses. Yet, the company is optimistic about its forward outlook, indicating that despite higher fares, demand for the travel sector remains strong.
The consensus of analysts expects DAL’s net sales to jump 55.2% in 2022 to 46.4 billion, whereas profit margins are forecasted to improve from 0.94% last year to 2.75% in 2022, providing additional upside to the stock. Delta’s free cash flow is projected to weaken to $427 million this year compared to $1.25 billion last year, whereas net debt is projected to advance rapidly, up 39.4% year-on-year to $21.7 billion.
With this steep acceleration, the leverage of the airlines is expected to reach 4.14 times, an elevated amount in this rising yield environment. In addition, DAL stock exchanges with a premium compared to smaller airline peers, posting a 2022 EV/EBITDA of 9.11 times and a forward P/E of 23.5 times.
Airline Stocks to Buy: SkyWest (SKYW)
SkyWest (NASDAQ:SKYW) stock has underperformed the airline sector largely since the beginning of the year plunging 26.79%. However, this correction might be an opportunity for investors looking to enter a profitable airliner, that will also benefit from bouncing travel demand.
Sky West’s top line is estimated to decline moderately this year, down 4.5% to $2.59 billion, whereas net profit is projected to weaken down to $3.53 million versus $112 million in 2021. Besides, the consensus of analysts expects a boost in SKYW’s net debt, up 25.2% to $2.81 billion, corresponding to a high leverage ratio of 4.55 times.
Despite weakening financials for SKYW, the company has surpassed in the last three quarters analyst expectations, indicating a strong execution. Besides, with leisure demand expected to enhance in the following months, SKYW might recover the lag it witnessed since the beginning of the year.
The steep depreciation of SKYW stock is an opportunity for investors looking for cheap airline stock. The company has a forward EV/EBITDA of 6.96 times and trades 40% below its 2022 book value, posting a Price to Book of 0.6 times.
On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.