Despite ongoing quality issues at airplane manufacturer Boeing (BA), sky-high oil prices, and supply chain issues, airline stocks are performing surprisingly well of late and deserve a second look from investors. Against all odds, the Zacks Transportation-Airline industry is a top 37% group (93 out of 251), and the U.S. Global Jets ETF (JETS), a proxy for airline stocks, is up an impressive32% over the past six months, far outpacing the S&P 500 Index.
Often, stocks tend to turn long before it’s obvious that the underlying industry has turned. As Wayne Gretzky says, “Skate to where the puck is going not to where it has been.” Below are three ways to play a potential turn in the airline industry.
Boeing (BA)
The global airline manufacturing market is dominated by to major players: Netherlands-based Airbus (EADSY) and Boeing. Boeing has been the premier manufacturer of commercial jetliners for decades. However, recently the company’s reputation has taken a significant hit due to ongoing safety issues with its aircrafts.
Duopoly & Backlog
Supply chain issues and safety concerns have led to a significant slowdown in Boeing’s deliveries. Nevertheless, the company is working to repair its reputation by naming a new CEO for its commercial airplane division. Regardless of Boeing’s safety issues, it’s important to understand that clients only have a choice between Airbus and Boeing, and many have already inked deals with Boeing. In fact, Boeing currently has a massive backlog of $520 billion! In other words, if the company can clean up its safety concerns, earnings will explode.
Rallying Despite Negative News
Last week, credit rating agency Moody’s slashed Boeing’s credit rating to Baa3. However, investors should pay attention to a stock’s reaction to news rather than the news itself. Since the downgrade, the stock is up ~10%, evidence that the bad news may have already been baked into shares.
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Expected to Swing Back to Profit in 2024
Investors should never view fundamentals in a vacuum. For example, Carvana (CVNA) is up more than 1,500% over the past year because its fundamentals went from near-bankruptcy to strong. Boeing is an example of a similar turnaround play. After five years of deep losses, analysts expect BA to swing to a profit in 2024.
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United Airlines (UAL)
Rising Demand
Earlier this month, UAL shares exploded by 17% on volume turnover which was five times the norm after reporting earnings. Revenues increased nearly 20% year-over-year, aided by an uptick in air-travel demand.
New Destinations
Beyond renewed post-Covid travel demand, the airline is benefitting from the addition of six new destinations in a partnership with Brazilian Airline Azul (AZUL).
Positive EPS Surprise History
Despite the volatility in airline industry conditions, UAL has bested Zacks Consensus Estimates for seven straight quarters, including a 71% positive surprise in the most recent quarter.
Image Source: Zacks Investment Research
Delta Airlines (DAL)
Modern Fleet with Airbus
Unlike many airlines, Delta is not reliant on Boeing filling its massive backlog. The company has a modern fleet and inked a deal to buy 20 Airbus wide jets. The Airbus planes offer fuel efficiency and greater cargo capabilities than many of its current planes.
Strong Earnings Despite Higher Oil Prices
Last quarter, DAL earnings increased by a healthy 42% in the wake of higher energy prices. If energy prices continue to decline, earnings should explode.
Bottom Line
The airline industry is flourishing despite a plethora of industry challenges. Three airline-related stocks offer great reward-to-risk zones.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.2% per year. So be sure to give these hand picked 7 your immediate attention.
The Boeing Company (BA) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
Airbus Group (EADSY) : Free Stock Analysis Report
U.S. Global Jets ETF (JETS): ETF Research Reports
Carvana Co. (CVNA) : Free Stock Analysis Report
AZUL (AZUL) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
