3 reasons why airline stocks are a buy right now

image of an unbranded jet flying in blue skies

Key points

  • American and Delta Airlines are showing bullish chart patterns with potential moving average crossovers.
  • Analysts maintain a buy rating on airline stocks while acknowledging challenges ahead.
  • Despite the expected decline in earnings of some airlines in 2024, overall industry profitability is expected to recover in 2025.
  • 5 stocks we prefer to those of American Airlines Group

American Airlines Inc. Group NASDAQ:AAL is retreating after the Jan. 25 post-earnings gap widening. However, Wall Street sees reasons to buy not only American Airlines but also other stocks in its sector.

Delta Air Lines Inc. NYSE: FROMwhich reported earnings on Jan. 12, and United Airlines Holdings Inc. NASDAQ: UALpublished on January 19, shows the same action as the American chart.

A guide that beats the opinions of analysts

All three stocks rallied after Americans beat Wall Street forecasts in both earnings and earnings. American’s forecast came in better than expected.

The company announced on January 31 that it would lay off 656 customer service workers, citing the counterintuitive reason that the move would improve service.

News of corporate streamlining often results in stocks rising, but American closed the Jan. 31 session down 2.06%.

The stock has found support at its 200-day moving average, which is currently trading above the short-term 50-day line, which you can see on the American Airlines chart.

Here are some indications that airline stocks could be candidates for buying.

Bullish moving average crossovers

In addition to America Airlines’ chart showing support at its 200-day line, it indicates that a bullish moving average crossover may be in the works.

Delta Airlines’ chart shows similar action.

When the 50-day moving average crosses above the 200-day moving average, it signals a bullish trend reversal. This crossover suggests that short-term momentum is gaining strength over the long-term trend. This often precedes a more bullish price movement.

The airline industry as a whole has exhibited erratic trading, but this is nothing new.

An easy way to track price action for the entire sector is to use the US Global Jets ETF NYSEARCA: JETSwhich tracks an index of airlines globally, with a focus on domestic passenger airlines.

The JETS ETF is up 25.75% over the past three months, but is down on a one-year and three-year basis. The US Global Jets ETF chart is also near the 50-day line, breaking above the 200-day line.

Analyst updates

American Airlines analyst forecasts show several price target upgrades or increases following the company’s earnings report. Some of the largest investment banks, including Citigroup, Barclays and JPMorgan Chase, have upgraded their outlook on the stock.

In a Jan. 9 note, Bank of America analysts laid out challenges facing the industry, including supply remaining higher than demand, cost pressures and competition on international routes.

However, given all this, Bank of America maintained its buy rating on Delta. You can see the “buy” analyst consensus forecasts on MarketBeat’s Delta Air Lines analyst forecasts page.

Bank of America also upgraded United to “buy,” citing revenue growth that outperformed the broader airline sector.

Meanwhile, Morningstar analyst Nicholas Owens said American and other airlines are doing a better job selling tickets directly to leisure travelers through apps and web purchases as business travel purchasing habits change.

As this process unfolds, Morningstar said, “We expect them to find new ways to attract and reward brand-loyal frequent travelers willing to pay for more comfortable experiences.”

Airline earnings are growing

Overall, airline industry earnings are expected to grow this year.

According to the International Air Transport Association, the airline industry’s outlook has been improved to $25.7 billion in profits this year.

According to the organization, revenue and available flights are expected to surpass 2019 levels, meaning the industry will have fully recovered from the pandemic.

Passenger revenues are expected to reach $717 billion, an increase of 12% from 2023.

Although American Airlines is expected to post a decline in earnings this year, growth is expected to rebound in 2025 by 37%.

United Airlines earnings are also expected to decline this year, but grow 23% next year to $11.64 a share.

Southwest Airlines Co. NYSE:LUV Earnings are expected to grow 2% this year and another 41% in 2025.

Wall Street sees Delta Air Lines earnings rising 3% this year and another 16% in 2025.

The profitability of these companies is likely to be a driving factor in rising prices, especially as revenue streams stabilize after the pandemic-related disruption.

Before you consider American Airlines Group, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and American Airlines Group wasn’t on the list.

While American Airlines Group currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here

A guide to hedging short and high interest stocks

MarketBeat analysts just released their top five short stocks for February 2024. Find out which stocks have the most short interest and how to trade them. Click the link below to see which companies are on the list.

Get this free report

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *