3 Airline Stocks Ready for Takeoff as Travel Sector Recovers

The growing preference of passengers for air travel and the adoption of advanced solutions by airlines offer promising prospects for the sector. Given the healthy state of the sector, investors could consider buying airline stocks SkyWest, Inc. (SKY), Air Canada (ACDVF), and Cathay Pacific Airways Limited (CPCAY).

The airline industry offers practical benefits and encompasses essential areas such as economic progress, cultural exchange, and emergency preparedness. The global airline industry is poised for growth, driven by factors such as increasing disposable income, a rising middle class, and increased demand for travel. As a result, the global airline market is expected to grow at a steady pace. CAGR of 3.5% by 2032.

Moreover, according to an IATA report, airlines spend 22.1% of their operating costs on fuel. To reduce this operating cost, airlines have started adopting advanced solutions. With the increasing preference of passengers for air travel, the demand for aviation analytics tools has been propelled. According to an IATA report, the number of air passengers is expected to increase by 1.2% to 1.4%. 8.2 billion by 2037.

In light of these encouraging trends, let’s look at the fundamentals of the three Airlines companies actions, starting with the third choice.

Action No. 3: SkyWest, Inc. (SKY)

SKYW operates a regional airline in the United States. It operates through two segments, SkyWest Airlines and SWC, and SkyWest Leasing. The company is also involved in leasing regional jet aircraft and spare engines to third parties, and providing on-demand charter services, airport customer services and ground handling services.

In terms of trailing 12-month EBITDA margin, SKYW is at 19.54%, which is 41.2% higher than the industry average of 13.84%. Its trailing 12-month leveraged free cash flow margin is at 12.05%, which is 88.4% higher than the industry average of 6.40%. Similarly, the stock’s trailing 12-month CAPEX to sales ratio is at 8.23%, which is 181.1% higher than the industry average of 2.93%.

SKYW’s total operating revenue increased 16.2% year-over-year to $803.61 million in the fourth quarter ended March 31, 2024. It posted an operating profit of $99.51 million, compared to an operating loss of $4.70 million in the same quarter last year. net revenue was $60.30 million, or $1.45 per share, compared to a net loss of $22.07 million, or $0.45 per share, in the same quarter of 2022.

For the quarter ending June 2024, SKYW’s revenue is expected to increase 12.2% year over year to $814.40 million. Its EPS for the same quarter is expected to increase 400% year over year to $1.75. SKYW has surpassed consensus EPS estimates in each of the last four quarters.

SKYW has gained 102.4% over the past year to close its last trading session at $82.74.

The SKYW POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

SKYW has an A grade for Growth and a B for Sentiment and Quality. It is ranked #4 of 26 stocks in the Airlines companies industry.

For more information on SKYW dynamics, stability and value, click here.

Action #2: Air Canada (ACDVF)

Headquartered in Saint-Laurent, Canada, ACDVF is a major airline offering domestic, U.S. transborder and international services, including travel packages and air cargo to approximately 50 countries. Operating under brands such as Air Canada Vacations and Air Canada Rouge, the airline has a diverse fleet of 192 aircraft and operates travel loyalty programs.

In terms of trailing 12-month net profit margin, ACDVF’s 9.88% is 62.1% higher than the industry average of 6.10%. Similarly, its trailing 12-month total asset return of 7.37% is 50.1% higher than the industry average of 4.91%. Furthermore, the stock’s trailing 12-month ROTC of 10.52% is 47% higher than the industry average of 7.15%.

During the first quarter ended March 31, 2024, ACDVF generated operating revenue of $11 billion, compared to a loss of $17 million in the prior-year quarter. The company reported adjusted EBITDA of $453 million, an increase of 10.2% compared to the prior-year quarter.

Additionally, the Company’s net cash flow from operating activities and free cash flow increased 10.4% and 7% year-over-year to $1.59 billion and $1.06 billion, respectively.

The Street expects ACDVF’s revenue for the quarter ending June 2024 to rise 2.7% from a year earlier to $4.15 billion. ACDVF has topped consensus revenue estimates in each of the past four quarters.

ACDVF has fallen 1.7% over the past six months to close its last trading session at $13.07.

ACDVF has an overall B grade, which equates to a Buy in our proprietary rating system. ACDVF also has an A grade for Value and Quality. It is ranked #3 in the same industry.

To see additional POWR Ratings for Stability, Momentum, Sentiment, and Growth, Click on here.

Action #1: Cathay Pacific Airways Limited (CPCAY)

Headquartered on Lantau Island, Hong Kong, CPCAY provides international passenger and air cargo services. The company operates through its four business segments: Cathay Pacific and Cathay Dragon; Air Hong Kong; HK Express; and Airline Services.

CPCAY’s gross profit margin over the last 12 months is 35.07%, which is 12.9% higher than the industry average of 31.07%. Furthermore, the stock’s net profit margin over the last 12 months is 10.36%, which is 69.9% higher than the industry average of 6.10%.

For the fiscal year ended December 31, 2023, CPCAY’s total revenue and operating income were $12.11 billion and $1.94 billion, up 85.1% and 335.7% year-over-year, respectively.

For the same year, its underlying profit attributable to CPCAY shareholders and earnings per ordinary share were $982 million and 16.10 cents, compared to an underlying loss attributable to CPCAY shareholders and a loss per ordinary share of $849 million and 14.40 cents the previous year, respectively.

The stock fell slightly during the day to close the last trading session at $5.01.

It’s no surprise that CPCAY has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. CPCAY also has a B rating for Growth, Value, Stability, and Quality. It ranks first in the same industry.

Beyond what is stated above, we also evaluated CPCAY for sentiment and momentum. Get all CPCAY scores here.

What to do next?

Steve Reitmeister, a 43-year investment veteran, has just released his 2024 market outlook, along with his trading plan and 11 top picks for the year ahead.

Stock market outlook 2024 >

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As of Friday afternoon, CPCAY shares were trading at $5.04 per share, up $0.03 (+0.59%). Year-to-date, CPCAY has gained 1.64%, compared to a 17.39% gain in the benchmark S&P 500 Index over the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about financial markets and wealth management, which led her to pursue a career as an investment analyst. She holds a Bachelor’s degree in Finance and Marketing and is pursuing the CFA program. Her fundamental approach to stock analysis helps investors identify the best investment opportunities. More…

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