Airline stocks normally don’t move around too much, but they have been quite volatile since the Covid-19 pandemic. Lockdowns decimated the industry, but travel has been recovering. The removal of lockdown restrictions created a “revenge travel” phenomenon that has been going strong for two years.
Changes in consumer sentiment can create buying opportunities for investors. Airline stocks have benefitted from the resurgence in travel, and yet most airline stocks are still below their pre-pandemic levels. It’s easy to find airline stocks that are still 20%-50% below their pre-pandemic price points.
Investors looking to diversify their portfolios and buy airline stocks may want to consider these promising opportunities.
Delta Airlines (DAL)
Delta Airlines (NYSE:DAL) has gained 25% year-to-date (YTD) and has a 9 price-to-earnings (P/E) ratio. The company paid steady dividends before the pandemic and recently returned to giving dividends. Delta reinstated its quarterly dividend in July at $0.10 per share. Delta has previously given a $0.4025 quarterly dividend to its investors. Continued demand for the travel industry can help the corporation get back to its pre-pandemic dividend payments.
The company generated record-breaking revenue in the second quarter. The company’s $15.6 billion in revenue represents a 12.7% year-over-year (YOY) increase. The company also expects to deliver record revenue in the third quarter and achieve an EPS of $2.20-$2.50.
Delta can deliver 11%-14% YOY revenue growth if its guidance holds. Delta also raised its EPS guidance to $6-$7. The company remains committed to $3 billion in free cash flow.
Delta has put some of its money to use to trim its debt. The airline company reduced its debt by $2.5 billion from the end of 2022 to Q2 2023.
United Airlines (UAL)
United Airlines (NYSE:UAL) shares have gained 27% YTD. The company recently achieved record-breaking revenue performance, but shares are still almost 50% down from their pre-pandemic levels.
United Airlines grew its revenue by 17.1% YOY. Net income eclipsed $1 billion. The airline averaged over 2,400 daily flights which is a record for the company. United Airlines has not maintained that many daily flights in any quarter.
The stock’s valuation looks enticing at current levels. Shares trade at a forward P/E ratio below 4 and at a 0.10 PEG ratio. United Airlines has also been making progress with its debt, including a $1 billion prepayment for high-coupon debt.
United Airlines raised its full-year 2023 adjusted EPS guidance to $11-$12. The resurgence in travel and a strengthening balance sheet suggest United Airlines can reward long-term investors.
As the company makes more progress with its balance sheet, it can return to pre-pandemic prices. United Airlines is already doing a fine job with revenue and earnings. As long as the travel boom continues, United Airlines can continue generating profits for investors.
American Airlines (AAL)
American Airlines (NYSE:AAL) shares have gained 10% YTD and come with a forward P/E ratio of 4. The stock’s PEG ratio is below 0.10. These valuation metrics look promising for a company that reported 4.7% YOY revenue growth in the second quarter.
That figure isn’t as impressive as the other airline stocks, and it’s not the best number for growth stocks either. However, American Airlines finds itself cheaply valued. Net income came to $1.4 billion, or $1.92 per diluted share.
Like other airline companies, American Airlines decided to raise its guidance. The corporation now calls for EPS ranging from $3.00-$3.75. American Airlines has also been making progress with its balance sheet. That effort resulted in a rating increase by Fitch. The firm raised American Airlines’ credit rating by two notches, up to a B+ rating.
American Airlines ended the quarter with $14.9 billion in available liquidity, giving them additional flexibility to cover financial obligations. American Airlines stock can deliver gains as airline stocks continue to climb closer to their pre-pandemic price levels.
On the date of publication, Marc Guberti 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.
