Airline stocks are so cheap from a valuation perspective that they ought to take off at a rapid pace — they just need the right series of catalysts, which may be taking shape, according to one Wall Street analyst.
"While macroeconomic and geopolitical risks may continue to suppress historical 4Q rally potential, we believe sharply depressed valuations represent dry kindling … but does anyone (in the world) have a match? Longer-term pockets of recovery remain — corporate travel (happening, yet eternally debated) and easing global travel restrictions," Evercore ISI analyst Duane Pfennigwerth stated in a new note to clients.
"With continued network restoration and lower assumed fuel [costs] next year, the case for traffic growth in ’23 (vs. ’22) is obvious. Over time, capacity normalization should drive unit cost (and unit revenue) normalization," he added.
The airline industry is already seeing signs of brighter skies after the turbulent COVID-19 period.
United Airlines recently lifted its third quarter revenue guidance to 12% growth from 11%. Operating margins are seen at about 10.5%, above a prior estimate for 10%.
Rival American Airlines said demand was strong in September — it now sees third quarter sales rising 13% compared to prior guidance for 10% to 12%.
Airlines never got an invitation to the lockdown rager, yet they get an equal dose of hangover now that the punch bowl has been taken awayDuane Pfennigwerth, Evercore
The above-plan guidance comes despite the ongoing overall economic slowdown.
Delta reports earnings Thursday morning and may provide more upbeat commentary to fuel a renewed bull case on the airline sector.
But, to be sure, there continues to be haters on airline stocks. The NYSE Arca Airline Index has plunged roughly 44% year to date compared to a 20% decline for the S&P 500.
The aforementioned Delta's stock is trading on a paltry forward price-to-earnings multiple of 4.8 times compared to the S&P 500's 15.8 times.
Added Pfennigwerth, "As far as we can tell, there is no visible credit or differentiation to the view that pockets of demand remain in recovery. Markets are taking a one-size-fits-all view of cyclical equities into a potential recessionary backdrop, regardless of each sector's experience through the pandemic. The way airline stocks have been acting, you’d think the industry fully participated in the stimulus juiced lockdown party. Instead, travel spent the roaring ’20-’21 in a depression, nearly shut down. Airlines never got an invitation to the lockdown rager, yet they get an equal dose of hangover now that the punch bowl has been taken away."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
Related Quotes
Southwest Airlines (LUV) closed the most recent trading day at $32.76, moving +1.02% from the previous trading session.
This iron condor trade on Tesla has the potential to return 23% if the stock stays between 170 and 270.
Earlier this year, Frontier Airlines was all set to merge with Spirit Airlines to create, basically, a giant of budget air travel. Frontier had a ring, had a tuxedo, and was waiting at the altar, only to find out that Spirit had rudely absconded with a different suitor. Spirit shareholders rejected Frontier's $19.99 per share bid for Spirit, and instead JetBlue got in there, sweeping Spirit off its feet for $33.50 a share, or $3.8 billion dollars, pending Federal regulatory review.
Investors need to pay close attention to JetBlue (JBLU) stock based on the movements in the options market lately.
Currently, AT&T sports a high 7.4% dividend yield, which means the company will pay an estimated 7.4% of its stock price to shareholders each year. This number constantly fluctuates because it is calculated using the annual dividend payout divided by the stock price. The yield rises if the dividend goes up and the stock price stays the same.
Investors seemingly can’t stop trying to pick a stock market bottom, no matter how bad the news—and it continues to backfire. Consider: This past Thursday, September’s consumer inflation report came in much hotter than expected, with the core CPI hitting a 40-year high. The initial response was exactly what you’d expect—the traded down as much as 2.4%—but then it started rallying…and rallying.
The economist warned in 2006 that the U.S. housing bust would cause a financial crisis. Now he has a new economic doomsday prediction, and it isn't pretty.
Being patient doesn't always pay off.
MarketWatch Picks has highlighted these products and services because we think readers will find them useful; the MarketWatch News staff is not involved in creating this content. And at a 2009 shareholder meeting, Buffett noted that the first best thing you can do to protect against inflation is to invest in yourself and your skills: “If you’re the best teacher, if you’re the best surgeon, if you’re the best lawyer, you will get your share of the national economic pie regardless of the value of whatever the currency may be,” he said.
Investors have become more confident that the company can put the past behind it as demand for air travel recovers.
Everyone is hoping the market might be bottoming and by the recent actions of Bank of America clients, some evidently think the lows must be in sight. Last week, BofA customers splashed out $6.1 billion on US stocks, in what amounted to the third largest inflow since 2008. While the bank has stated it is not as confident the bottom is quite so close, it’s not hard to see why investors feel the time is right to lean into equities. The widespread losses have left scores of beaten-down stocks looki
(Bloomberg) — Tesla Inc. shares tumbled about 50% from their all-time high, amid a broader selloff in the US stock market that has hit growth and technology companies especially hard. Most Read from BloombergRolex Prices to Drop Further as Supply Surges: Morgan StanleyPutin Tried for Years to Stop His Military From Using Western Parts — And Mostly FailedWorld Faces New Threats From Fast-Mutating Omicron VariantsStocks Upended by Inflation Survey’s Sobering View: Markets WrapUndervalued US Stock
Investors were surprised by the big rally in the stock market on Thursday, but Friday brought another dose of reality and disappointment. After having posted monumental gains despite high readings on inflation, the Nasdaq Composite (NASDAQINDEX: ^IXIC) closed at its worst level of the year, and the S&P 500 (SNPINDEX: ^GSPC) and Dow Jones Industrial Average (DJINDICES: ^DJI) gave up most of their advances from earlier in the week. One of the biggest stock stories of the past several years has been Tesla (NASDAQ: TSLA).
This week’s worse-than-expected inflation report led to turmoil in more than one market, but you only read about one of them. What got far less attention was the flurry of excitement that the inflation report caused in the normally-staid I-bond market.
These diversified natural-resource giants have solid balance sheets, earnings, and dividends. All that they need is a rebound in commodity prices.
The U.S. Treasury Department put an item on its agenda Friday to start talking with primary dealers about the potential for it to buy back some of its older debt to help keep markets functioning smoothly.
It's easy to see what makes investors so interested in this high-yield stock, but there are concerns.
The Senior Citizen’s League says there ‘may be no COLA payable in 2024.'
The iconic investor's approach could work for anyone hoping to retire with significant dividend income.
Verizon Communications Inc. stock is trending on the Yahoo Finance Platform. Here is a visualization of $VZ performance over time, how that performance compares to the wider industry, and analyst projections for the current quarter.