As we embark upon a new year, several airline stocks are catching the eye of investors, with a number of them occupying coveted spots on the Zacks Rank #1 (Strong Buy) list. The U.S. Department of Transportation revealed that the recent holiday travel season witnessed remarkable smoothness, with a mere 0.8% cancellation rate, a stark contrast to the 8.2% witnessed at the end of 2022. In fact, the cancellation rate for domestic flights in 2023 was below 1.2%, marking the lowest in a decade.
Touting a Zacks Rank #1 (Strong Buy), SkyWest Airlines, a regional operator, is capturing attention as it primarily operates flights in the Midwestern and Western United States, as well as Mexico and Canada. Anticipated to witness a robust post-pandemic rebound, analysts forecast a significant surge in EPS for the fiscal year of 2024, expected to reach $5.06 per share compared to $0.50 per share for fiscal 2023. With the company’s stock trading near $50, the forward earnings multiple stands at a reasonable 10.2X, further bolstered by a substantial uptick in earnings estimate revisions over the past quarter.
American Airlines: Eyeing the Sky Amid Undervaluation
Standing out as the largest domestic and global airliner, American Airlines’ stock appears undervalued at $12, boasting a mere 5.5X forward earnings multiple. Garnering a Zacks Rank #2 (Buy), the company’s attractive P/E valuation paints a compelling picture for potential growth, despite a projected -19% decline in FY24 earnings to $1.93 per share, following a FY23 estimate of $2.41 per share. Moreover, there is a slight upward momentum in earnings estimates for both fiscal years, with a promising 8% increase in total sales projected for FY23, and a further 4% rise to $55.21 billion in FY24, signaling a potential increase in the company’s earnings power as operational costs settle.
Ryanair: Flying High as a Foreign Favorite
Positioned as an attractive low-fare carrier among foreign airlines, Ryanair’s scheduled-passenger airline services spanning regions like Ireland, the UK, Israel, and Morocco, coupled with its Zacks Rank #1 (Strong Buy) status, make it an intriguing prospect. The company is expected to emerge as a post-pandemic winner, with FY24 earnings set to soar by 25% and grow by an additional 16% in FY25, reaching $10.62 per share. These projections are all the more impressive when compared to the pre-pandemic period, with a 106% surge in FY25 EPS from the 2019 figures. Notably, Ryanair’s top-line growth is reflective of the positive outlook, with an estimated 27% increase in total sales for FY24 and a further 9% rise in FY25.
Bottom Line
The drop in cancellation rates underscores the resurgent strength of airline travel within the U.S., with SkyWest and American Airlines positioned to reap the benefits. Simultaneously, Ryanair has carved out a strong niche among foreign carriers. The potential for these airline stocks to soar in 2024 makes it an opportune time for investors to consider taking flight with these promising investments.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
