The airline industry is expected to grow as a result of pent-up demand for travel. The industry also benefits from introducing innovative technologies and enhanced safety measures to ensure a seamless and secure travel experience.
Given the industry’s growth prospects, investors could consider buying fundamentally sound airline stocks Delta Airlines, Inc. (DAL), Ryanair Holdings plc (RYAAY), and Cathay Pacific Airways Limited (CPCAY) for solid returns.
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 31.0% in June 2023 compared to June 2022. Total traffic increased 47.2% in the first half of 2023 compared to the previous year.
Willie Walsh, IATA’s Director General, said, “The northern summer travel season got off to a strong start in June with double-digit demand growth and average load factors topping 84%. Planes are full which is good news for airlines, local economies, and travel and tourism dependent jobs. All benefit from the industry’s ongoing recovery.”
Moreover, using smart airports and integrating AI into aviation operations contribute to the airline industry’s growth. The global airline industry is expected to grow at a CAGR of 25.5% until 2027.
In light of these encouraging trends, let’s look at the fundamentals of the three B-rated Airlines stocks, beginning with number 3.
Stock #3: Delta Air Lines, Inc. (DAL)
DAL provides scheduled air transportation for passengers and cargo in the United States and internationally. The company operates through two segments: Airline and Refinery.
On August 15, 2023, DAL and investment firms Certares Management LLC and Knighthead Capital Management LLC announced an expanded partnership with Wheels Up Experience Inc., a leading provider of on-demand private aviation, to accelerate the company’s business transformation.
The companies plan to provide a $500 million facility, including a $400 million term loan and $100 million liquidity facility, combining DAL’s aviation expertise, Certares’ travel focus, and Knighthead’s restructuring experience to support Wheels Up’s growth.
DAL’s forward EV/Sales of 0.87x is 49.5% lower than the industry average of 1.72x. Its forward Price/Sales of 0.48x is 64.7% lower than the industry average of 1.35x.
DAL’s trailing-12-month CAPEX/Sales of 10.93% is 271.7% higher than the industry average of 2.94%. Its trailing-12-month ROCE of 50.16% is 263.2% higher than the industry average of 13.81%.
DAL’s total operating revenues for the second quarter ended June 30, 2023, increased 12.7% year-over-year to $15.58 billion. Its adjusted operating income came in at $2.49 billion, up 72.6% year-over-year.
Also, its adjusted net income and EPS came in at $1.72 billion and $2.68, up 87.1% and 86.1% year-over-year, respectively.
The consensus revenue estimate of $57.13 billion for the year ending December 2023 represents a 13% increase year-over-year. Its EPS is expected to grow 108.6% year-over-year to $6.68 for the same period. DAL’s shares have gained 36.7% over the past year to close the last trading session at $43.77.
DAL’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DAL also has a B grade for Growth. It is ranked #10 out of 28 stocks in the B-rated Airlines industry. Click here for the additional POWR Ratings for Sentiment, Stability, Momentum, Value, and Quality for DAL.
Stock #2: 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 5.70 is 49.4% lower than the industry average of 11.26. Its forward EV/EBIT multiple of 8.68% is 44.5% lower than the industry average of 15.62.
RYAAY’s trailing-12-month levered FCF margin of 16.03% is 193.5% higher than the 5.46% industry average. Its trailing-12-month ROCE of 28.95% is 109.6% higher than the 13.81% 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 21.9% year-over-year to $14.20 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 40% to close the last trading session at $98.64.
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.
It is ranked #9 in the same industry. It has an A grade for Sentiment and a B for Growth and Quality. To see additional RYAAY’s ratings for Stability, Momentum, and Value, click here.
Stock #1: Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY, with its subsidiaries, operates as a carrier of international passengers and air cargo. The company conducts airline operations principally to and from Hong Kong.
CPCAY’s forward EV/Sales multiple of 1.26 is 27.9% lower than the industry average of 1.75. Its forward EV/EBIT multiple of 9.35% is 40.2% lower than the industry average of 15.62.
CPCAY ’s trailing-12-month levered FCF margin of 38.59% is 606.5% higher than the industry average of 5.46%. Its trailing-12-month EBIT margin of 15.03% is 52.9% higher than the 9.83% industry average.
CPCAY’s total revenue for the first half that ended June 30, 2023, rose 135% year-over-year to HK$43.59 billion ($5.55 billion). Its operating profit came in at HK$8.77 billion ($1.12 billion), compared to an operating loss of HK$1.25 billion ($159.67 million) for the same period.
Also, its net income came in at HK$4.27 billion ($543.88 million), compared to a net loss of HK$5 billion ($637 million).
Analysts expect CPCAY’s revenue to increase 83.8% year-over-year to $11.95 billion for the year ending December 2023. The stock has gained 13% over the past three months to close the last trading session at $5.30.
It’s no surprise that CPCAY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and Quantity and a B for Stability and Sentiment. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated CPCAY for Momentum and Value. Get all CPCAY ratings here.
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DAL shares were trading at $43.51 per share on Wednesday morning, down $0.26 (-0.59%). Year-to-date, DAL has gained 32.69%, versus a 18.83% 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.
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