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Airline Stocks Take Off, No Rough Landing in Sight: 3 Winners

Tirthankar Chakraborty

The coronavirus pandemic had taken a heavy toll on the airline industry, with market pundits expecting the path to recovery to take a long time. Some believe that it may take at least two years or longer for the aviation industry to bounce back to pre-COVID levels. 


A handful of airliners have suspended their dividend payouts and some have even filed for bankruptcy protection. Notably, shares of some of the premier airliners, including United Airlines Holdings, Inc. UAL, Spirit Airlines, Inc. SAVE and American Airlines Group Inc. AAL, have tanked more than 50% so far this year.


But thankfully, things have started to look up for airlines of late. In fact, airline shares took off on Aug 10 on tell-tale signs that travel may finally be picking up. The U.S. Global Jets ETF surged 4.8% yesterday, with all of its U.S.-listed components gaining traction. Similarly, the NYSE Arca Airline Index was up nearly 5%, with investors mostly appearing to view the travel demand trend as a solid reason to boost stocks.


The Transport Security Administration (TSA) reported that 831,789 passengers passed through the TSA checkpoints on Aug 9, the highest single-day total since Mar 17.


Now, one-day data may not signal a trend but the averages have also been rising at a steady level, touching nearly 700,000 daily commuters in the recent seven-day period, up from 661,000 three weeks ago. On Aug 8, TSA screened 683,212 people and on Aug 7, they screened 762,547 passengers at checkpoints throughout the nation.


Moreover, the latest TSA data indicated a significant uptick in air travel demand. After all, at the worst level, on Apr 14, only 87,534 travelers went through the TSA checkpoints, down 96% from a year ago.


By the way, airline stocks are positioned to gain momentum as the latest coronavirus case count shows signs of a declining trend. Only 13 U.S. states reported that their seven-day average of new cases in the last two-week-period has moved up, down from 42 states having higher averages a month earlier.


And how can we forget that the prospects of another financial aid from the Congress bode well for the airline industry. Possibility of a second airline bailout package strengthened after President Trump signaled support for an extension of the Payroll Support Program in the Cares Act. In fact, a group of 16 Republicans signed a letter last week supporting another stimulus package.


Lest we forget, already $50 billion under the Cares Act has been provisioned for the airline industry, which has companies with battered bottom lines in the wake of the pandemic. 


And finally, travel stocks received a boost after the State Department removed the warning for U.S. citizens traveling abroad.

3 Airline Stocks to Keep an Eye On

Americans’ return to the skies last weekend and the government’s supportive stance have enhanced things for airline stocks. 


We have, thus, highlighted three best U.S. carriers which have not only rallied on Aug 10 but are also in a pretty decent shape, fundamentally. These stocks currently possess a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


American Airlines is widely expected to increase capacity owing to rising air travel demand. 


Moreover, the company has taken several initiatives to reduce costs, which helped it bring down its cash-burn rate. The company’s cash-burn rate in the June quarter was nearly $55 million per day, comparing favorably with its previous forecast of $70 million per day. By the end of 2020, the carrier hopes to reduce its cash-burn rate to zero. The company’s shares gained 7.4% on Aug 10.


United Airlines provides air transportation services in North America. It transports people and cargo through its mainline and regional fleet.


United Airlines’ recent cost-cutting measures to offset coronavirus-related adversities bode well for the company. The company took several cost-control measures like freezing hiring (except for crucial roles), delaying salary increases and giving employees the option to apply for voluntary leave or early retirement. The carrier is also trying to preserve cash by cutting down on capital expenditures and operating expenses.


The company’s shares gained 9.4% on Aug 10. It’s earnings growth rate for the past five-year period is 12.8%.


Allegiant Travel Company ALGT operates low-cost passenger airlines. It focuses on linking leisure travelers in small and medium sized cities to world-class destinations.


Prior to the coronavirus outbreak, Allegiant Travel had an impressive record of dividend payments and share repurchases. Most importantly, the company has modernized its fleet. Allegiant’s fleet size at the end of 2019 was 91, indicating an increase from 2018’s reported figure. The transition to an all-Airbus fleet, completed way back in November 2018, has enhanced Allegiant’s fuel efficiency.


The company’s shares gained 0.9% on Aug 10. It’s earnings growth rate for the past five-year period is 12%. What’s more, its expected earnings growth rate for the next five-year period is 20.9%.

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.


With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan. 


The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.


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United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
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