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Richard Branson once said that to become a millionaire, start with a billion dollars and buy an airline. But with the consolidation of the industry, increased efficiency and expanding markets, the outlook for the industry has improved. Here several MoneyShow.com contributors offer their best choices among US airlines.
Crista Huff, Dedicated Portfolio Advisor at Cabot
There is a lot to love about Delta Airlines (DAL) stock right now. It is a US and international passenger and cargo airline with an extensive and efficient hub complex. The company participates in several joint ventures with foreign airlines and has recently increased its stake in Mexican society. Grupo Aeromexico (GRPAF) at 49%.
Delta Air Lines has been named "the most punctual airline in the world" in 2017 by Flightglobal. Despite the increased fluctuations in energy prices in 2018, Delta expects an increase in the margin by the end of 2018, thus contributing to annual earnings growth.
Wall Street expects Delta GAAP earnings per share to fall from $ 4.93 in 2017 to $ 5.59 in 2018 and $ 6.64 in 2019, reflecting the very strong EPS growth rate of 13.4% and 18.8% in 2018 and 2019.
It is important for investors to know that consensus GAP estimates change frequently for airline securities, with airline fuel prices being an important factor in constant adjustments. So the important thing to focus on with Delta is that it is a very profitable business and that profits continue to grow at a steady pace.
Delta Air Lines is both a growth stock and a stock of value – with a return of 2.4%. The equity price / earnings ratios for 2018 and 2019 are quite low, at 10.4 and 8.8, respectively, which leaves plenty of room for upward share price before anyone else considers the stock is overvalued.
Brit Ryle, Heritage advice
Southwest Airlines Co. (LUV) operates an airline that provides air transportation services in US and international markets. It serves 101 destinations in 40 states; Washington DC .; and Puerto Rico and eight other countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize and Cuba.
Patience pays off. After suffering a loss for several months, we are looking at double-digit profits for this one. Dividends paid also help. But much of this movement comes from stocks – capital appreciation. And it will continue.
JetBlue (JBLU) just announced that it would increase its prices. This makes Southwest Airlines the only quality discount air carrier in the country. And it's not just flying in this country either. Central America and the Caribbean have long halted on the Southwest routes, capturing billions of dollars in spring break. And the company has recently added flights to and from the Hawaiian Islands.
Already, our neighbors to the north can benefit from Southwest's best service and extremely low prices. Yes, we are going to Canada. And with the flights that are already going to Hawaii, I would not be surprised to see that this would become a hub for Asian flights.
And I would not be surprised to see Southwest heading east to start offering discounted rates to and from Europe. The stock is now classified as a purchase below $ 70 per share. Continue adding actions below this limit. Our target price over 12 months is $ 95.
Hilary Kramer, Investor stock
The market has been remarkably resilient. However, I think what will ultimately be the fall of this bull market will be an adjustment for earnings estimates for 2019. If the estimates go down, while the Fed continues to raise its rates, a correction of 10% to 15% is possible. Investors must therefore think in terms of defense.
An idea that could survive a future correction is Alaska Airlines (ALK) . The stock is down more than 30% from its high of March 2017, where it traded above $ 100. Three issues led to the decline, including higher fuel prices, increased capacity in the industry, and the difficulties faced by Alaska Airlines in integrating the Virgin America acquisition.
However, the prospects for the three challenges seem to be improving. Fuel prices are stabilizing, capacity additions are moderating, and Alaska Airlines' acquisition costs are declining, with a cost per available seat of only 2% in the last quarter. These factors should result in earnings per share improvement of $ 4.15 this year to more than $ 6.00 next year. The stock is cheap at 11x earnings forecasts.
Mike CintoloCabot Top Ten Trader
United Continental (UAL) This is no secret, with its impressive fleet of aircraft (768 major aircraft and 554 regional aircraft by the end of the year, total fleet up 4, 7% compared to the end of 2017) carrying millions of passengers worldwide.
The consolidation of the sector (less competition) and the avoidance of the price war have helped United and other countries to see their profits climb from 2013 to 2015, although profits have stabilized in recent years (although only at high levels). Today, the perception of investors is improving, the already high profits start to increase (with more chances to occur), thanks to a strong economy, moderate fuel prices and, for United Continental, to the continued expansion of its fleet.
For 2018, the company sees its total capacity increase by nearly 5% and its traffic grow faster, generating big profits (north of $ 8 per share) and free cash flow (totaling $ 2.4 billion already). in the first half). With modest and persistent price and traffic increases (the company just increased its baggage fees from $ 25 to $ 30), analysts are expecting earnings to rise about 20% this year and next year.
The actions of the airlines are not exciting, but when they do, they can really move. The last uptrend of United Continental went from $ 30 in March 2013 to $ 75 in January 2015. After that, the task was very long (the stock was at $ 73 July this year), but the gap in July and the relatively steady rise since then appear to be a shift in trend. We think that the dips are purchasable.
Meanwhile, Spirit Airlines (RECORD) is the largest ultra-low cost carrier in the country, with more than 500 daily flights to 67 destinations (including 88% of the 25 largest metropolitan areas in the United States). The attraction here is the price – Spirit claims that its plane ticket is 35% cheaper than the average competitor because of its cost structure (high-density passenger planes, heavy use of the aircraft). aircraft, efficient use of doors, etc.), and the company relies more on ancillary services. income (less price-sensitive) than his peers.
And management thinks its cost benefits will only grow over the next few years! As for the stock, it is solid, partly because investors think that the sector as a whole is about to turn, and in particular for Spirit, because the new capacity and cost control lead to an acceleration in the growth of revenues and (soon) a recovery in earnings.
For the year, Spirit is forecasting a 23% increase in total capacity, while revenue per seat-mile traveled is expected to increase from the current quarter. While profits were a resounding success last year and are expected to remain unchanged this year, net income is expected to grow 20% in the North in the third quarter and nearly 30% for the whole of 2019. Plunge into an environment conducive to consumer spending and a reasonable valuation (15 times earnings) and we believe the stock can perform well.
Spirit Airlines had a difficult year, reaching $ 85 in 2014, dropping to $ 33 a year later, reaching a new $ 30 minimum correction about a year ago. But after many successful tests of the $ 35 zone this year, the stock has not only gone up, but has started to progress steadily – stocks have risen in a straight line since early July and are at their highest level since last July. . We believe that lows or upheavals will lead to higher prices.
Doug Gerlach, Investor Advisory Service
Allegiant Travel Company (ALGT) is a discount airline operating in a niche linking smaller metropolitan markets to popular vacation destinations. Its biggest destinations are Orlando and Las Vegas. The company's strategy is to fly large aircraft with relatively low frequency in each market served.
It uses its fleet less efficiently than other major airlines, but it compensates by flying cheaper planes and operating less expensive airports. It also handles transactions directly with customers, rather than sharing revenue with travel aggregators. Taking a page from the deep discounters, Allegiant also adds fees for snacks, seat reservations and other standard subtleties of major carriers. It also operates charter flights.
Equities have underperformed the market over the last three years. Part of the problem lies in the fact that Allegiant seems on the verge of saturating its natural market opportunities. Working relationships were difficult. And earlier this year, a 60 minutes report challenged the company's safety record. Volatile fuel prices are also a risk.
Allegiant has a differentiated niche in the small markets it serves. Combine this with a history of past success and moderate appraisal, which can be an opportunity to make money where other investors are afraid to walk. Allegiant also makes capital available to shareholders. The number of shares has decreased by 18% over the last five years. The company pays a dividend of $ 2.80 per year.
We model 12% EPS growth, which would generate EPS of $ 15.10 in five years. For a low price, we apply a low P / E of 13.4 to an EPS of $ 7.49, adjusted for a standardized tax rate of 25%. This gives a low price of $ 100. This figure, combined with a high P / E of 20.1, generates a high price of $ 304. On this basis, the up / down ratio is 5.3 to 1. With dividends, the annual compounded return could be 19%.
Richard Moroney, Upside down
SkyWest (SKYW) and competing airlines have been turbulent this year, weighed down by fears that rising fuel costs will weigh on profits. Concerns that increasing capacity would increase empty seats and crimping prices also hurt the group.
SkyWest and its subsidiary Express Jet are flying code-share agreements with major airlines, with some 3,000 daily departures. Lightened operations help boost profits. A fleet transition started in 2014 is expected to be completed this year, providing SkyWest with a smaller but more profitable network.
Since 2014, the airline has removed some 200 less profitable aircraft and added more than 80 new larger aircraft. SkyWest recorded 90,600 departures in August and the occupancy factor (capacity utilization) improved to 82.4%. Importantly, profit estimates are increasing. According to consensus estimates, earnings per share should rise 44% in 2018. With a score of 79, SkyWest is a Best Buy.
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