HomeMost PopularTech StocksTime to Buy the Recent Dip in Airline Stocks?

Time to Buy the Recent Dip in Airline Stocks?

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The optimism surrounding increased travel demand has waned, leading to a significant drop in the stock prices of several prominent airline companies in recent months.

The three largest airlines in the United States by revenue, Delta Air Lines (DAL), American Airlines (AAL), and United Airlines (UAL), have all experienced a decline in their stock prices after reaching their 52-week highs in July.

However, despite the recent dip, let’s explore whether this presents a buying opportunity and examine the future prospects for these leading airlines as they continue to recover from the effects of the pandemic.

Annual Growth Comparison

Premium Service

Delta Air Lines, known for its superior customer service and flexible flight change policies, operates a network of approximately 300 destinations in over 50 countries. The company’s annual earnings are projected to increase by 99% in fiscal year 2023 to $6.36 per share, compared to $3.20 per share in 2022. Additionally, sales are expected to rise by 11% this year and continue to grow by 1% in fiscal year 2024, reaching $56.82 billion.

International Leader

United Airlines has the highest exposure to international markets, serving over 130 destinations worldwide and 215 locations in the United States. The company’s earnings are forecasted to surge by 333% in fiscal year 2023 to $10.92 per share, compared to $2.52 per share in the previous year. Total sales are expected to increase by 19% this year and rise by 6% in fiscal year 2024, reaching $56.95 billion.

Domestic Leader

American Airlines holds the largest market share for domestic flights, serving approximately 350 locations within the United States and over 60 countries globally. The company’s earnings are projected to rebound by an astonishing 476% to $2.88 per share in fiscal year 2023, compared to $0.50 per share in 2022. Total sales are expected to increase by 8% this year and continue to rise by 5% in fiscal year 2024, reaching $55.66 billion.

Valuation Comparison

In addition to their impressive growth prospects, the three major airline companies also stand out in terms of their price-to-earnings (P/E) valuations, suggesting that they may be undervalued. United Airlines, in particular, trades at a compellingly low P/E ratio of 3.9x forward earnings, representing a 54% discount compared to the industry average of 8.6x and well below the S&P 500 index’s P/E ratio of 20x.

Delta and American Airlines also trade at attractive discounts to the industry and benchmark, with P/E ratios of 5.7x and 4.4x forward earnings, respectively.

Bottom Line

Currently, all three major airline stocks hold a Zacks Rank #3 (Hold). While there may be short-term risks associated with market volatility and the resurgence of inflationary pressures on travel, Delta, United, and American Airlines have strong cases for being undervalued at their current levels. Holding on to these stocks could prove rewarding as they offer exposure to both domestic and international markets.

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Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

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

American Airlines Group Inc. (AAL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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