Bet on these three best airline stocks offering stellar growth potential with attractive valuations
Given the International Air Transport Association’s (IATA) upbeat profitability forecast, now’s an excellent time to consider investing in airline stocks.
IATA recently upped its profitability projections for airliners this year, ahead of previous forecasts. This includes net profits jumping to $30.5 billion with a 3.1% net profit margin, up from $27.4 billion last year. Moreover, the number of travelers is projected to hit an all-time high of 4.96 billion.
What’s encouraging is that airlines continue to improve their bottom-lines despite the headwinds. Also, IATA’s Director General, Willie Walsh, emphasized the industry’s critical role in global trade and the need for policies that support sustainable expansion ahead.
Based on these positive forecasts, it’s best to bet on these three airline stocks to buy. These stocks offer stellar upside potential backed by robust fundamentals and encouraging long-term prospects. Also, these stocks are trading at attractive valuations, with plenty of room to run.
Best Airline Stocks: SkyWest (SKYW)
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SkyWest (NASDAQ:SKYW) is a Utah-based regional airline that has cemented its position by connecting passengers to smaller airports with a robust pricing advantage. Also, its partnerships with the leading legacy carriers in the U.S. enable it to offer cost-effective flights while maintaining service quality.
SKYW stock stood out in the domestic airline space last year, gaining over 100%. Moreover, it has maintained momentum well into this year, gaining north of 55% in the past six months.
The spectacular gains in SKYW stock have been due to its superb operational performance lately. Its recently released first-quarter (Q1) results showed a 16% jump on a year-over-year (YOY) basis to $803.6 million. More noteworthy was its bottom-line rebound, turning a net loss of $22 million in Q1 2023 into a massive net gain of $60 million in Q1 2024. Moreover, with a strong surge in travel demand forecasted, expect SKYW stock to continue climbing in value.
American Airlines (AAL)
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American Airlines (NASDAQ:AAL), the world’s largest carrier, that’s witnessed plenty of turbulence in the past couple of years. Consequently, the stock tanked more than 35% last year and over 18% in the past six months. Hence, AAL stock trades at an attractive 0.1 times forward sales, 91% behind the sector median.
The recent pullback in its stock is linked to AAL’s downward revision of its adjusted EPS forecast to fall in the $1 to $1.15 range for the second-quarter (Q2). The adjustment is down from the previous range of $1.15 to $1.45. Moreover, its revenue per available seat mile is expected to drop by 5% to 6%, reflecting ongoing difficulties, particularly in reigniting business travel demand post-pandemic.
Nevertheless, despite the challenges of passing on operational costs and weaker revenues, AAL remains a resilient and dominant force with massive international operations and a large fleet. Additionally, the airline’s focus on smaller cities, including the Sun Belt region, could potentially yield long-term benefits as these areas grow.
United Airlines (UAL)
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United Airlines (NASDAQ:UAL) is navigating the economic turmoil, and Boeing challenges with considerable aplomb. With a clear strategy for top-and-bottom-line growth, the airliner’s recent results have showcased robust revenue growth, effective cost management, and superb free cash flows. Moreover, its higher margins and lower debt than peers elevate its position in the airline space.
Also, its strategic expansion into profitable international and mid-continent routes positions it for long-term growth. In the past four consecutive quarters, the firm has bested estimates across both lines. Moreover, in Q1, it reported a solid 9.7% increase in sales to $12.54 billion, beating estimates by $144.8 million. Also, despite the rise in unit costs weighing down profitability in Q1, its trailing twelve-month (TTM) EPS stands at $8.19.
Given its superior execution, Citi analysts boosted their price target on UAL to $96 from $80, assigning a ‘strong buy’ rating. Also, Wolfe Research upgraded UAL to ‘outperform,’ forecasting a sizeable uptick in its stock price over the next 6 to 12 months.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Muslim Farooque 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