3 Airline Stocks to Buy Now as Air Travel Demand Bounces Back
The Zacks Airline industry is benefiting from buoyant air-travel demand following the easing of COVID-19 travel restrictions and the reopening of the global economy. The industry is witnessing a solid recovery in demand both in domestic as well as international flights. People are again booking flights, thereby leading to higher passenger revenues, which contribute to the bulk of most airlines’ top lines.
Notably, the Zacks Airline industry has risen 6.9% over the past six months, outperforming the 0.5% growth of the broader Zacks Transportation sector and 2.9% decline of the Zacks S&P 500 composite.
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The buoyancy in the industry is further confirmed by its Zacks Industry Rank #55, which places it in the top 22% of more than 250 Zacks industries.
Here we present three airline players — Copa Holdings, S.A. CPA, American Airlines Group Inc. AAL and Alaska Air Group, Inc. ALK — which are gaining from robust demand for air travel.
However, high fuel costs will continue to affect the bottom-line growth of the industry players.
3 Airline Stocks to Pick Now
Given this encouraging backdrop, we present three airline stocks that have strong growth potential for 2023. These stocks have a Zacks Rank #1 (Strong Buy) or #2 (Buy), a VGM Score of A or B and a solid expected earnings growth rate for the current year. These have also witnessed upward estimate revisions in the past 90 days. Additionally, these stocks have a strong trailing four-quarter average earnings surprise history. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities for investors. Thus, the selected companies appear to be compelling investment propositions at the moment.
Copa Holdings: This company provides airline passenger and cargo services to 69 destinations in 29 countries in North, Central, and South America, as well as the Caribbean from its Panama City hub.
Copa Holdings’ top line benefits from growth in passenger revenues and its cargo segment. In fourth-quarter 2022, cargo and mail revenues jumped 69% to $27.09 million, owing to higher cargo volumes and yields. Further, CPA’s fleet modernization efforts look encouraging. CPA exited 2022 with a consolidated fleet of 97 aircraft, which comprises 67 Boeing 737-800s, 20 Boeing 737 MAX 9s, 9 Boeing 737-700s and 1 Boeing 737-800 freighter. In January 2023, CPA further took delivery of one Boeing 737 MAX 9 and anticipates receiving one additional aircraft by the end of the first quarter.
Copa Holdings carries a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for CPA 2023 EPS has moved up 21.1% in the past 90 days. Its expected earnings growth rate for the current year is 39.83%. CPA has a trailing four-quarter earnings surprise of 33.35%, on average.
CPA stock has gained 23.7% over the past six months.
Copa Holdings, S.A. Price, Consensus and EPS Surprise
Copa Holdings, S.A. price-consensus-eps-surprise-chart | Copa Holdings, S.A. Quote
American Airlines: This Fort Worth, TX -based company operates as a network air carrier.
Continued recovery in air-travel demand, particularly on the domestic front, bodes well for American Airlines. Driven by soaring demand on healthy bookings, in the March quarter, total revenues per available seat miles are expected to be 24-27%, higher than the first-quarter 2022 actuals. The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025-end. As of Dec 31, 2022, the carrier reduced its debt levels by more than $8 billion from peak levels in the second quarter of 2021.
Currently, American Airlines carries a Zacks Rank #2 and has a VGM Score of B. The Zacks Consensus Estimate for AAL 2023 EPS has moved up 31.1% in the past 90 days. Its expected earnings growth rate for the current year is more than 100%. AAL has a trailing four-quarter earnings surprise of 7.79%, on average.
AAL stock has gained 10.2% over the past six months.
American Airlines Group Inc. Price, Consensus and EPS Surprise
American Airlines Group Inc. price-consensus-eps-surprise-chart | American Airlines Group Inc. Quote
Alaska Air: This Seattle, WA-based airline company is benefiting from upbeat air-travel demand and favorable pricing. Backed by this, ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals. To match the upbeat demand, capacity in the March quarter is expected to expand in the 11-14% range. Alaska Air expects to boost its fleet and also workforce in 2023 to meet the anticipated high demand. In a bid to modernize its fleet, Alaska Airlines announced in October the decision to exercise its option of purchasing 52 more 737 MAX jets from Boeing. The planes will be delivered between 2024 and 2027. On a shareholder-friendly note, ALK’s management aims to resume share buybacks early next year, following the lifting of restrictions under the CARES Act. Repurchases are anticipated to be between $75 million and $100 million in 2023.
Currently, Alaska Air carries a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for ALK’s 2023 EPS has moved up 11.4% in the past 90 days. Its expected earnings growth rate for the current year is 32.64%. ALK has a trailing four-quarter earnings surprise of 8.98%, on average.
ALK stock has gained 0.3% over the past six monhts.
Alaska Air Group, Inc. Price, Consensus and EPS Surprise
Alaska Air Group, Inc. price-consensus-eps-surprise-chart | Alaska Air Group, Inc. Quote
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