Back to top

Image: Bigstock

Airline Stocks Rally Could Help These 3 Stocks Fly Higher

Read MoreHide Full Article

The U.S. airline industry has officially shaken off its first-quarter blues on the back of Delta Air Lines’ (DAL - Free Report) improved profit outlook and extended credit-card partnership with American Express, Airlines for America’s encouraging spring forecast, beneficial policies and the U.S. economy’s overall good shape.

Airline Equities Climb Higher

This week’s rally in airline stocks came as a huge relief to investors, thanks to the jump in Delta shares. On Apr 2, Delta said that it is expecting higher-than-expected Q1 results. The company cited healthy demand and record performance for its raised earnings and revenue guidance. Delta also announced that it has extended its attractive credit-card partnership with American Express through 2029.

The airline told investors that it is expecting to earn 85-95 cents per share during Q1, up from its earlier estimate of 70-90 cents, on an adjusted basis. Delta’s shares have jumped 3% since the announcement.

However, Delta’s upbeat profit outlook for Q1 is merely one of the many factors driving airline stocks at present. Bullish forecast by Airlines for America (A4A) in the last week of March indicated a significant jump in airline operations through Mar 1- Apr 30, which is the spring travel season.

According to A4A, the industry trade organization for leading U.S. airlines, American airlines can expect an all-time high of 158.2 million passengers to fly worldwide during the mentioned period, marking a 4.3% jump from the same period last year. This demand has led to domestic airlines adding 129,000 additional seats per day to accommodate the higher passenger inflow.

U.S. consumers’ satisfying flight experiences and better financial well-being are increasing demand for air travel (according to the University of Michigan, U.S. consumer sentiment climbed in Marchto 98.4 from February’s 93.8) Secondly, applications for unemployment benefits declined to a 49-year low in the last week of March, indicative of the prolonged strength in the U.S. labor market. Unemployment rate remained at 3.8.

Friendly Fiscal and Monetary Policies

Current fiscal and monetary policies are extensively helping the airline industry. Be it President Donald Trump’s tax law, which took effect in late 2017, or Federal Reserve’s decision to keep interest rate hikes at bay, airlines are greatly benefiting.

Lower corporate tax cuts are definitely upping the bottom line of airlines and resulting in increased cash flows and higher savings. This means that airlines have more capital to spend on improving their infrastructure, add new facilities and engage in acquisitions.

Frozen interest rates are helpful as well, since it makes it easier for carriers to take loans for infrastructure-related investments, which can be quite huge.

Investing in Airlines is Lucrative Right Now: 3 Choices 

Given the aforesaid positives, investing in airline stocks seems prudent. In fact, the NYSE ARCA AIRLINE INDEX (XAL) has gained 1.9% since Apr 2, with many prominent airlines such as United Continental, American Airlines and Spirit, SkyWest (SKYW - Free Report) and Atlas Air Worldwide (AAWW - Free Report) registering a jump in price performance.

We have chosen three airline stocks that you could consider adding to your portfolio.

Delta Air Lines, Inc. is a provider of scheduled air transportation for passengers and cargo in the United States and globally.

Delta Air Lines has a Zacks Rank #2 (Buy) and its expected earnings growth rate for the current year is 15.6% compared with the Zacks Transportation – Airline industry’s projected rise of 13.7%. Its Zacks Consensus Estimate for current-year earnings has risen 0.5% in the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest, Inc. operates as a regional airline in America and offers scheduled air transportation for passengers and air freight services.

SkyWest has a Zacks Rank #1 (Strong Buy) and its expected earnings growth rate for the current year is 9.1%. Its Zacks Consensus Estimate for current-year earnings has risen 3.2% in the past 60 days.

Atlas Air Worldwide Holdings, Inc. is a provider of outsourced aircraft and aviation operating services.

Atlas Air Worldwide has a Zacks Rank #2 and its expected earnings growth rate for the current year is 3.7%. Its Zacks Consensus Estimate for current-year earnings has risen 4.7% in the past 60 days.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Delta Air Lines, Inc. (DAL) - free report >>

SkyWest, Inc. (SKYW) - free report >>

Atlas Air Worldwide Holdings (AAWW) - free report >>

More from Zacks Analyst Blog

You May Like