Despite macroeconomic challenges, the airline industry is likely to expand as travel demand rises. Rising disposable income, an expanding middle-class population, and a growing preference for air travel over other modes of transportation are driving this growth.
However, while I think one could consider investing in Ryanair Holdings plc (RYAAY), United Airlines Holdings, Inc. (UAL) might be best kept on hold, and JetBlue Airways Corporation (JBLU) avoided now, given its weak fundamentals.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the airline industry.
The International Air Transport Association (IATA) reported that total traffic increased by 26.2% in July 2023 compared to July 2022. Global traffic is now 95.6% of what it was before the pandemic.
Willie Walsh, IATA’s Director General, said, “Planes were full during July as people continue to travel in ever greater numbers. Importantly, forward ticket sales indicate that traveler confidence remains high. And there is every reason to be optimistic about the continuing recovery.”
The global airline industry is expected to grow at a CAGR of 25.5% until 2027. This expansion is being fueled mostly by increased disposable income and expanding tourism. Also, technological developments and the creation of low-cost carriers are contributing to the industry’s rapid growth.
However, the airline sector is facing macroeconomic challenges and a labor shortage. These difficulties have been worsened by the global pandemic, which has cut travel demand dramatically and resulted in financial losses for several airlines. Additionally, the sector is having difficulty finding skilled employees to perform critical tasks, such as pilots and maintenance specialists, which is affecting its operations.
With these trends in mind, let’s delve into the fundamentals of the three Airlines stocks, starting with the stock to buy.
Stock to Buy:
Ryanair Holdings plc (RYAAY)
Headquartered in Swords, Ireland, RYAAY offers scheduled passenger services in Ireland, the United Kingdom, Italy, and internationally. Also, it provides various ancillary services like non-flight scheduled and internet-related services; and markets car hire, travel insurance, and accommodation services.
On August 8, 2023, RYAAY introduced a new convenience service at Manchester Airport, allowing passengers traveling on morning flights until 8:00 a.m. to drop off their checked bags the previous evening (between 7:00 p.m. and 10:00 p.m.).
RYAAY’s Head of Communications, Jade Kirwan, said, “As Manchester’s No.1 airline, we’re delighted to launch our new ‘Twilight Bag Drop’ service for all our customers traveling from Manchester Airport this summer. This complimentary service will further improve our passengers’ overall travel experience and further reduce airport queuing times for those taking early morning flights.”
RYAAY’s forward EV/EBITDA multiple of 5.93 is 46.3% lower than the industry average of 11.04. Its forward EV/EBIT multiple of 9.03% is 41.1% lower than the industry average of 15.33.
RYAAY’s trailing-12-month levered FCF margin of 16.03% is 193.2% higher than the 5.47% industry average. Its trailing-12-month ROCE of 28.95% is 112.2% higher than the 13.65% industry average.
RYAAY’s revenues for the fiscal 2024 first quarter that ended June 30, 2023, rose 40% year-over-year to €3.65 billion ($3.96 billion). Its profit after tax was €663 million ($721.01 million), an increase of 290% from the prior year’s corresponding period. The company’s profit for the period was €662.90 million ($720.90 million), up 253.6% year-over-year.
Furthermore, the company’s EPS increased 252% year-over-year to €58.22.
Street expects RYAAY’s revenue to increase 20.5% year-over-year to $14.05 billion for the year ending March 2024. Its EPS is expected to grow 30.5% year-over-year to $8.84 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Over the past year, the stock has gained 35% to close the last trading session at $100.50.
RYAAY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Stock to Hold:
United Airlines Holdings, Inc. (UAL)
UAL, through its subsidiaries, provides air transportation services. The company transports people and cargo through its mainline and regional fleets. In addition, it also offers catering, ground handling, training, and maintenance services for third parties.
UAL’s trailing-12-month ROCE of 45.69% is 234.9% higher than the 13.65% industry average while, its trailing-12-month net income margin of 0.64% is 88.4% lower than the 5.47% industry average.
For the fiscal second quarter, which ended on June 30, 2023, UAL’s total operating revenue increased 17.1% year-over-year to $14.18 billion. The company’s net income amounted to $1.08 billion, up 226.7% year-over-year, while its EPS increased 224% from the year-ago value to $3.32.
However, its total current liabilities came in at $25.58 billion for the period that ended June 30, 2023, compared to $19.99 billion for the period that ended December 31, 2022. Its total liabilities and stockholders’ equity came in at $73.34 billion, compared to $67.35 million for the same period.
Analysts expect UAL’s revenue to increase 19.1% year-over-year to $53.52 billion for the year ending December 2023. Its EPS is expected to grow 333.5% year-over-year to $10.92 for the same period. It is EPS is expected to surpass EPS estimates in all four trailing quarters. The stock has gained 21.4% over the past year to close the last trading session at $47.60. However, the stock has lost 7.2% over the past three months.
It’s no surprise that UAL has an overall C rating, equating to a Neutral in our POWR Ratings system. It has a C grade for Growth, Momentum and Quality. It is ranked #15 in the same industry.
Beyond what is stated above, we’ve also rated UAL for Value, Stability, and Sentiment. Get all UAL ratings here.
Stock to Sell:
JetBlue Airways Corporation (JBLU)
JBLU is a travel company. It provides air transportation services across the United States, the Caribbean, Latin America, Canada and the United Kingdom. Its segments include Domestic, and Caribbean & Latin America. It operates five types of aircraft: Airbus A220, Airbus A320, Airbus A321, Airbus A321neo, and Embraer E190.
JBLU’s forward non-GAAP P/E multiple of 42.06% is 144.6% higher than the industry average of 17.20%. Its forward EV/EBIT multiple of 23.62 is 54.1% higher than the industry average of 15.33.
JBLU’s trailing-12-month net income margin of 0.27% is 95.6% lower than the industry average of 6.19%. Its trailing-12-month ROTA of 0.20% is 96.1% lower than the 5.08% industry average.
JBLU’s total current assets came in at $3.89 billion for the period that ended June 30, 2023, compared to $3.75 billion for the period that ended December 31, 2023. Its long-term debt and finance lease obligations came in at $3.49 billion, compared to $3.09 billion for the same period.
The consensus revenue estimate of $2.41 billion for the quarter ending September 2023 represents a 5.9% decrease year-over-year. Its EPS is expected to come in at negative $0.12 for the same period. JBLU’s shares have lost 39% over the past year to close the last trading session at $5.12.
JBLU’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.
JBLU has an F grade for Sentiment and a D for Stability and Quality. It is ranked #24 in the same industry. Click here for the additional POWR Ratings for Value, Growth, and Momentum for JBLU.
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RYAAY shares were trading at $99.42 per share on Wednesday afternoon, down $1.08 (-1.07%). Year-to-date, RYAAY has gained 32.99%, versus a 17.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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