Growing passenger preference for air traveling along with adoption of advanced solutions by airlines, the industry’s prospects are promising. Given the industry tailwinds, investors could consider buying airline stocks SkyWest, Inc. (SKYW), Air Canada (ACDVF), and Cathay Pacific Airways Limited (CPCAY).

The airline industry offers convenience and encompasses critical domains like economic progress, cultural interchange, and emergency readiness. The global airline industry is poised for growth, driven by factors such as increasing disposable income, a burgeoning middle class, and heightened demand for travel. Hence, the global airline market is expected to grow at a CAGR of 3.5% by 2032.

Moreover, according to a report by IATA, airlines spend 22.1% of their operating costs on fuel. To reduce this operating cost, airlines have started adopting advanced solutions. With the growing passenger preference for air traveling, the demand for aviation analytics tools has been propelled. According to a report by IATA, the air passenger number is expected to increase to 8.2 billion by 2037.

In light of these encouraging trends, let’s look at the fundamentals of the three Airlines stocks, starting with the third choice.

Stock #3: SkyWest, Inc. (SKYW)

SKYW engages in the operation of a regional airline in the United States. It operates through two segments, SkyWest Airlines and SWC; and SkyWest Leasing. The company is also involved in leasing regional jet aircraft and spare engines to third parties, and provision of on-demand charter, airport customer, and ground handling services.

In terms of the trailing-12-month EBITDA margin, SKYW’s 19.54% is 41.2% higher than the 13.84% industry average. Its 12.05% trailing-12-month levered FCF margin is 88.4% higher than the 6.40% industry average. Likewise, the stock’s 8.23% trailing-12-month CAPEX/Sales is 181.1% higher than the 2.93% industry average.

SKYW’s total operating revenues increased 16.2% year-over-year to $803.61 million in the fourth quarter that ended March 31, 2024. It posted an operating income of $99.51 million, compared to its year-ago quarter’s operating loss of $4.70 million. Its net income was $60.30 million, or $1.45 per share, compared to a net loss of $22.07 million, or $0.45 per share, in the same quarter of 2022.

For the quarter ending June 2024, SKYW’s revenue is expected to increase 12.2% year-over-year to $814.40 million. Its EPS for the same quarter is expected to increase 400% year-over-year to $1.75. SKYW surpassed the consensus EPS estimates in each of the trailing four quarters. 

SKYW gained 102.4% over the past year to close its last trading session at $82.74.

SKYW’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.   

SKYW has an A grade for Growth and a B for Sentiment and Quality. It is ranked #4 out of 26 stocks in the Airlines industry.

For additional SKYW’s Momentum, Stability, and Value, click here.

Stock #2: Air Canada (ACDVF)

Headquartered in Saint-Laurent, Canada, ACDVF is a major airline offering domestic, U.S. transborder, and international services, including vacation travel packages and air cargo in about 50 countries. Operating under brands like Air Canada Vacations and Air Canada Rouge, the airline has a diverse fleet of 192 aircraft and manages travel loyalty programs.

In terms of the trailing-12-month net income margin, ACDVF’s 9.88% is 62.1% higher than the 6.10% industry average. Likewise, its 7.37% trailing-12-month Return on Total Assets is 50.1% higher than the industry average of 4.91%. Furthermore, the stock’s 10.52% trailing-12-month ROTC is 47% higher than the industry average of 7.15%.

In the first quarter, which ended March 31, 2024, ACDVF generated operating revenue of $11 billion, compared to a loss of $17 million in the previous year’s quarter. The company reported adjusted EBITDA of $453 million, an increase of 10.2% from the prior year’s quarter.

In addition, the company’s net cash flows from operating activities and free cash flow grew 10.4% and 7% year-over-year to $1.59 billion and $1.06 billion, respectively.

Street expects ACDVF’s revenue for the quarter ended June 2024 to increase 2.7% year-over-year to $4.15 billion. ACDVF surpassed the consensus revenue estimates in each of the trailing four quarters.

ACDVF plunged 1.7% over the past six months to close its last trading session at $13.07.

ACDVF has an overall B rating, equating to a Buy in our proprietary rating system. ACDVF also has an A grade for Value and Quality. It is ranked #3 in the same industry. 

To see additional POWR Ratings for Stability, Momentum, Sentiment, and Growth, click here.

Stock #1: Cathay Pacific Airways Limited (CPCAY)

Headquartered in Lantau Island, Hong Kong, CPCAY offers international passenger and air cargo transportation services. The company operates through its four operating segments: Cathay Pacific and Cathay Dragon; Air Hong Kong; HK Express; and Airline Services.

CPCAY’s 35.07% trailing-12-month gross profit margin is 12.9% higher than the industry average of 31.07%. Furthermore, the stock’s 10.36% trailing-12-month net income margin is 69.9% higher than the industry average of 6.10%.

For the fiscal year that ended December 31, 2023, CPCAY’s total revenue and operating profit stood at $12.11 billion and $1.94 billion, up 85.1% and 335.7% year-over-year, respectively.

For the same year, its underlying profit attributable to shareholders of CPCAY and earnings per ordinary share came to $982 million and 16.10 cents, compared to an underlying loss attributable to shareholders of CPCAY and loss per ordinary share of $849 million and 14.40 cents in the previous year, respectively.

The stock plunged marginally intraday to close the last trading session at $5.01.

It’s no surprise that CPCAY has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. CPCAY also has a B grade for Growth, Value, Stability, and Quality. It is ranked first in the same industry. 

Beyond what is stated above, we’ve also rated CPCAY for Sentiment and Momentum. Get all CPCAY ratings here.  

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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CPCAY shares were trading at $5.04 per share on Friday afternoon, up $0.03 (+0.59%). Year-to-date, CPCAY has gained 1.64%, versus a 17.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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