Airline stocks have solid potential ahead of the busy summer season.
Airline stocks have recently pulled back due to general market pressure, but the leading stocks in the industry continue to trade well above yearly lows as traders expect strong demand during the summer season.
Analyst estimates for Delta Air Lines contine to move higher at a robust pace. Currently, the company is expected to report earnings of $2.83 per share in 2022 and $6.21 per share in 2023, so the stock is trading at less than 7 forward P/E.
This cheap valuation could be explained by the general market weakness. In addition, some traders are worried that rising oil prices will ultimately hurt profitability, so analysts would have to revise their profit forecasts.
However, it looks that pent-up demand for travelling is strong, so Delta Air Lines should have enough pricing strength to offset the negative impact of rising fuel costs.
The big picture is similar for Southwest Airlines. Analysts estimates have recently moved to new highs due to strong pricing and expectations of the recovery of international and business travel.
The company is expected to report earnings of $2.43 per share this year and $3.77 per share in the next year, so the stock is trading at 12 forward P/E. This is expensive compared to Delta Air Lines, but the premium is explained by Southwest’s lower debt levels, which make it a safer investment.
It should be noted that both stocks have easily outperformed S&P 500 this year, and it looks that they will remain strong performers unless we see a major rally in the oil market.
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Vladimir is an independent trader, with over 18 years of experience in the financial markets. His expertise spans a wide range of instruments like stocks, futures, forex, indices, and commodities, forecasting both long-term and short-term market movements.