Returns from the top airline stocks lagged behind broader market gains last year. For instance, the U.S. Global Jets ETF was up only 8.44% last year, compared to the S&P 500, which shot up 25%. Given this context, the leading airline stocks to buy now are trading attractively, offering robust upside ahead.
The airline industry faces formidable challenges, especially with rising fuel costs eating into profits. Moreover, supply disruptions and geopolitical tensions compound those concerns further.
Despite these hurdles, the International Air Transport Association (IATA) predicts airline revenues to jump a healthy 7.60% in 2024, reaching historical highs of $964 billion. The solid growth is underpinned by increasing global mobility and the expansion of the middle class in emerging markets. Hence, the airline sector presents a unique blend of challenges and opportunities but offers stellar long-term upside potential.
Delta (DAL)
Delta (NYSE:DAL) is America’s largest airline, and it continues to excel as a logistical powerhouse in the aviation space. Delta’s bottom-line position remains impressive despite rising fuel costs, inflation, and ongoing negotiations with pilot unions.
In fact, its year-over-year (YOY) profitability metrics are ahead of its 5-year averages, a remarkable feat considering the current business environment. For instance, its YOY EBITDA margin stands at an incredible 13.90%, beating its 5-year average by a whopping 1070%. Similarly, its net income margin of 8.50% trumps its negative net income margin of 9.75% over the same period.
Delta has effectively maintained its streamlined network, optimizing connections for international passengers. Its strategic hub system enhances its operational efficiency while bolstering its capacity to maintain profitability in a topsy-turvy economic environment. Moreover, it delivered another comfortable revenue and earnings beat in its first quarter (Q1), marking the fourth consecutive quarter where it achieved this feat.
Despite the positives, DAL stock trades at just 0.50 times forward sales estimates, 65% behind the sector median. Tipranks assigns a ‘strong buy’ rating to DAL stock, offering a healthy 19% upside from current levels.
United Airlines Holdings (UAL)
United Airlines Holdings (NASDAQ:UAL) is one of the leading American airliners that’s had a forgettable outing at the stock market last year. UAL investors bagged just a 1% gain this year due to challenges facing the company.
The increased Federal Aviation Administration (FAA) oversight following safety concerns and dependencies on Boeing (NYSE:BA) for aircraft deliveries impacted its operations last year. However, these temporary issues will likely fizzle out in the upcoming quarters, positioning the airline for a more secure and successful future. Besides, the heightened regulatory scrutiny promises a stronger focus on safety and maintenance, leading to significant improvements.
Regardless of the headwinds, UAL ended last year with considerable aplomb, with a net income of $2.6 billion, a 253% improvement on a YOY basis. Additionally, its ending available liquidity was at a sizeable $16.1 billion.
An overlooked aspect of UAL is its proactive investments in Sustainable Aviation Fuel (SAF) to enhance its long-term operational efficiency. Its forward-looking UAV Sustainable Flight Fund supports innovations in SAF production, effectively curbing carbon emissions and operational expenses.
Copa Holdings (CPA)
There are many positives with Latin American airline giant Copa Holdings (NYSE:CPA). Though its stock is trading in the red year-to-date (YTD), its operational metrics continue to impress. Its bottom-line positioning is a visual feast, marked by a net income and free cash flow margin of 15% and 22%, respectively. Both metrics, among others, are ahead of the sector median by comfortable margins.
Similarly, Copa Holdings revenues grew by 17%, eclipsing the sector median by 185%. Though growth rates are considerably lower than historical averages, the company is positioned to efficiently leverage the rising demand for air travel in Latin America. Additionally, it continues to optimize operational costs with its modern, fuel-efficient fleet and reliable service.
Furthermore, we’ve seen a healthy double-digit increase in capacity in the past couple of months for the airliner, positioning it for a strong first-quarter (Q1) showing. Despite the positives, CPA stock trades under six times forward earnings, 71% lower than the sector average, while yielding over 5%.
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