The latest data on airline bookings from Bank of America suggests the uptick in summer domestic bookings and pricing continued in the month of August. With airline stocks trading at some of the lowest earnings multiples in the market, value investors such as Warren Buffett have made big bets on the long-term outlook for airline stocks. Bank of America analyst Andrew Didora says U.S. airlines are tracking to the high end of their third-quarter guidance ranges. Considering the positive pricing trends and the lapping of last year’s major hurricanes, Didora is bullish on the following 7 airline stocks.
Allegiant
Allegiant Travel Company (ALGT) is a discount domestic airline with a clear business strategy. Allegiant has differentiated itself by flying unique routes and connecting cities that other larger airlines do not, often flying these routes just three or four times per week. Didora says Allegiant’s transition to an all-Airbus fleet will improve the company’s reliability, maintenance costs and fuel efficiency. Didora is expecting third-quarter revenue per available seat mile (RASM) to decline by 0.1 percent, but he still loves the stock in the long-term. Bank of America has a “buy” rating and $185 price target for ALGT stock.
2. American Airlines
American Airlines Group Inc (AAL) is a beneficiary of an uptick in corporate travel, with two-thirds of its revenue coming from business travelers. Didora says American’s decision to cut both capacity and unit cost is a positive for investors. He is calling for third-quarter RASM growth of 3.5 percent, above the high end of the company’s guidance of between 1 percent and 3 percent. Didora says RASM will continue to grow by 3.3 percent in the fourth quarter and 2.0 percent in 2019. Bank of America has a “buy” rating and $61 price target for AAL stock.
3. Delta
Didora says Delta Air Lines, Inc. (DAL) has a solid management team with best-in-class operations, a pristine balance sheet and an impressive free cash flow. In fact, Didora estimates Delta alone will generate half of the total free cash flow in the airline industry in 2018, which it will devote to further improving its balance sheet and returning capital to shareholders. Didora says Delta’s 2018 earnings per share guidance is conservative, and the company will exceed expectations by reporting full-year EPS of $5.89. Bank of America has a “buy” rating and $72 price target for DAL stock.
4. Alaska Air
Alaska Air Group, Inc. (ALK) is…
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