The airline industry is expanding due to technology innovations and strong demand. So, quality airline stocks Delta Air Lines, Inc. (DAL) and Air Canada (ACDVF) could be wise additions to your portfolio.
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.”
Also, according to the IATA, the airline industry is expected to make a net profit of $9.8 billion in 2023, more than double the previous forecast of $4.7 billion. Also, the group expects around 4.35 billion people to fly commercial in 2023, or about 96% of 2019 levels.
Moreover, the connected aircraft market is expected to grow at a CAGR of 10.6% until 2028, reaching $16.5 billion. Data generated by connected aircraft includes flying performance, engine health, weather conditions, and so on. This information can be used to generate important insights, optimize flight routes, estimate maintenance requirements, and improve safety.
The global airline industry is expected to grow at a CAGR of 25.5% until 2027. Investors’ interest in airline stocks is evident from the U.S. Global Jets ETF (JETS) 14% returns over the past three months.
Take a detailed look at the stocks mentioned above:
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.
DAL’s forward EV/Sales of 0.90x is 50.4% lower than the industry average of 1.82x. Its forward Price/Sales of 0.51x is 64.4% lower than the industry average of 1.42x.
DAL’s trailing-12-month CAPEX/Sales of 10.93% is 273.7% higher than the industry average of 2.93%. Its trailing-12-month ROCE of 50.16% is 262.7% higher than the industry average of 13.83%.
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 109.8% year-over-year to $6.71 for the same period. DAL’s shares have gained 36.3% over the past nine months to close the last trading session at $45.79.
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, and Sentiment. It is ranked #10 out of 28 stocks in the B-rated Airlines industry. Click here for the additional POWR Ratings for Stability, Momentum, Value and Quality for DAL.
Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF offers domestic, U.S. transborder, and international airline services under the brand names Air Canada Vacations and Air Canada Rouge. It directly provides scheduled service and air freight lift to more than 180 airports across six continents.
ACDVF’s forward EV/EBITDA of 4.20x is 62.7% lower than the industry average of 11.25x. Its forward Price/Sales of 0.39x is 73% lower than the industry average of 1.42x.
ACDVF’s trailing-12-month CAPEX/Sales of 9.25% is 216.3% higher than the industry average of 2.93%. Its trailing-12-month levered FCF margin of 8.70% is 65.6% higher than the industry average of 5.25%.
During the first quarter that ended on March 31, 2023, ACDVF’s operating revenues increased 89.9% year-over-year to C$4.89 billion ($3.70 billion). Its adjusted EBITDA increased significantly from the year-ago value to C$411 million ($311.33 million), while its net income came in at C$4 million ($3.03 million), compared to a net loss of C$974 million ($737.79 million) for the year-ago period.
Analysts expect ACDVF’s revenue to increase 29.2% year-over-year to $15.87 billion for the year ending December 2023. Its EPS is expected to come in at $1.87 for the same period. Over the past nine months, the stock has gained 25.6% to close the last trading session at $17.18.
ACDVF’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Growth and a B for Quality. It is ranked #6 in the same industry.
Beyond what is stated above, we’ve also rated ACDVF for Sentiment, Momentum, Stability, and Value. Get all ACDVF ratings here.
What To Do Next?
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DAL shares were trading at $45.49 per share on Wednesday morning, down $0.30 (-0.66%). Year-to-date, DAL has gained 38.73%, versus a 17.76% 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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