Which Travel Stock Holds Long-Term Value: American Airlines (AAL) vs. Boeing (BA)

NYSE: BA | Boeing Co. News, Ratings, and Charts

BA – The airline industry’s strong growth this year is fueled by its rebound from COVID-19, robust passenger and cargo demand, and technological advancements despite facing challenges such as pilot shortages and geopolitical tensions. Let’s compare the fundamental aspects of American Airlines (AAL) and Boeing (BA) to determine which stock holds long-term value. Keep reading…

The airline industry is rebounding from COVID-19 but grapples with pilot shortages, climate change, and congestion. Despite these issues, the industry began the year with strong passenger demand, especially in the upcoming summer. The growth of e-commerce and international trade also boosts demand for cargo flights, further contributing to the industry’s expansion.

The International Air Transport Association (IATA) reported a 13.8% increase in global passenger demand for March 2024 compared to last year, with international demand rising by 18.9% and domestic demand by 6.6%. This growth is fueled by strong travel demand and excitement over airports embracing digitization, automation, consolidation, and contactless technology.

Rising fuel costs and geopolitical tensions, like the Russia-Ukraine conflict, strain airline finances. International conflicts lead to no-fly zones and revenue losses. Meanwhile, a shortage of skilled workers limits growth, while inadequate infrastructure and congestion cause delays. Additionally, cyber-attacks and climate change pressures further complicate operational strategies and costs.

On the other hand, in February 2024, IATA reported an 11.9% year-on-year growth in global air cargo demand due to increased manufacturing and export orders. Additionally, analysts predict that global air travel demand will considerably recover this year. In April 2024, U.S. travel agencies saw a 4% rise in air ticket sales, driven by domestic demand and ancillary sales, showcasing industry resilience.

Given this backdrop, let’s compare two airlines stocks, American Airlines Group Inc. (AAL) and The Boeing Company (BA), to understand why AAL is the stock to buy for long-term value.

The Case for American Airlines Group Inc. Stock

American Airlines Group Inc. (AAL) operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington. It operates a mainline fleet of 965 aircraft.

AAL’s stock has declined 6.7% over the past six months to close the last trading session at $11.43.

AAL’s revenue grew at a CAGR of 60.6% over the past three years. However, its Tang Book Value decreased at a CAGR of 2.1% over the past three years.

In terms of forward EV/EBIT, AAL is trading at 10.92x, 30.2% lower than the industry average of 15.65x. Similarly, the stock’s forward EV/EBITDA of 5.67x is 49.1% lower than the industry average of 11.14x.

In terms of the trailing-12-month Capex / Sales, AAL’s 5.48% is 88.5% higher than the 2.91% industry average. Its 0.81x trailing-12-month asset turnover ratio is 2.5% higher than the 0.79x industry average. However, the stock’s 25.31% trailing-12-month gross profit margin is 18.6% lower than the 31.10% industry average.

For the first quarter, which ended March 31, 2024, AAL’s total operating revenues rose 3.1% from the year-ago value to $12.57 billion. Its revenue per passenger miles rose 10.5% year-over-year to 57.47 billion. Also, its available seat miles (ASM) increased 8.5% over the prior-year quarter to 70.52 billion.

Moreover, the company reported a net loss and loss per common share of $312 million and $0.48 compared to net profit and earnings per share of $10 million and $0.02 a year ago, respectively.

For the quarter ending June 30, 2024, AAL’s revenue is expected to increase 3.2% year-over-year to $14.50 billion. Its EPS for the same quarter is expected to decrease 38.2% year-over-year to $1.19. It surpassed the Street EPS estimates in three of the trailing four quarters.

AAL’s stock is trading below its 50-day and 200-day moving averages of $14.16 and $13.72, respectively.

AAL’s POWR Ratings reflect this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a C grade for Quality. Within the Airlines industry, AAL is ranked #18 out of 26 stocks. To see AAL’s rating for Growth, Momentum, Stability, and Sentiment, click here

The Case for The Boeing Company Stock

The Boeing Company (BA) and its subsidiaries design, develop, manufacture, sell, service, and support commercial jetliners, military aircraft, satellites, missile defense systems, human space flight and launch systems, and related services worldwide. The company operates through the Commercial Airplanes, Defense, Space & Security, and Global Services segments.

BA’s stock has declined 33.4% year-to-date to close the last trading session at $173.62.

BA’s total assets declined at a CAGR of 3.6% over the past three years.

In terms of forward EV/Sales, BA is trading at 1.82x, marginally lower than the industry average of 1.82x. Likewise, its forward EV/EBITDA is trading at 35.68x, 220.4% lower than the 11.14x industry average.

In terms of the trailing-12-month EBITDA margin, BA’s 3.50% is 74.8% lower than the 13.88% industry average. Its 4.01% trailing-12-month levered FCF margin is 38.5% lower than the 6.52% industry average. Furthermore, the stock’s 11.48% trailing-12-month gross profit margin is 63.1% lower than the 31.10% industry average.

For the fiscal first quarter that ended on March 31, 2024, BA’s revenues decreased by 7.5% year-over-year to $16.57 billion, while its core operating loss narrowed by 11.8% year-over-year to $388 million. Likewise, its core loss per share narrowed 11% to $1.13 over the prior-year quarter.

Furthermore, as of March 31, 2024, its cash and cash equivalents amounted to $6.91 billion, compared to $10.81 billion as of March 2023.

Street expects BA’s revenue for the quarter ending June 30, 2024, to decrease 5.9% to $18.59 billion. Its EPS for the same quarter is expected to remain negative.

BA’s stock is trading below its 50-day and 200-day moving averages of $178.48 and $203.63, respectively.

BA’s POWR Ratings reflect its grim prospects. It has an overall rating of D, which translates to a Sell in our proprietary rating system.

It has a D grade for Growth and Stability. Within the Air/Defense Services industry, it is ranked #53 out of 71 stocks. In addition to what we stated above, we have also rated BA for Value, Momentum, Sentiment, and Quality. Get all the BA ratings here.

AAL vs. BA: Which Travel Stock Holds Long-Term Value?

Airlines are poised to surpass pre-COVID levels with substantial revenue growth from pent-up travel demand and a robust summer market.

By adopting digital innovations such as AI, IoT, cloud computing, electric aircraft, and blockchain, airlines enhance travel experiences, thus boosting their growth potential. Both AAL and BA seem well-positioned to leverage these promising industry trends.

Considering BA’s grim outlook, it could be wise to avoid it and keep an eye on AAL instead. AAL’s better financial position, discounted valuation, strong profitability, and positive analyst estimates position it as a potentially superior investment for long-term value compared to the Sell-rated BA.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Airlines industry here. Also, to check all the top-rated stocks in the Air/Defense Services industry, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

BA shares were trading at $173.74 per share on Thursday afternoon, up $2.09 (+1.22%). Year-to-date, BA has declined -33.35%, versus a 10.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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