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3 Airline Stocks Wall Street Predicts Could Rally by 35% or More

Although the resurgence of COVID-19 infections may hinder the aviation industry's recovery, demand for leisure and business travel has been improving of late in-part because more than 50% of the U.S. population is now fully vaccinated. Consequently, Wall Street analysts expect prominent airline stocks Delta Airlines (DAL), Alaska Air Group (ALK), and Allegiant Travel (AGLT) to deliver significant upside in the near term. So, let’s discuss.

Most airline companies reported strong earnings in their last reported quarter thanks to a decent uptick in demand for leisure travel and improvement in corporate travel bookings. Although governments in several countries have reinstated pandemic restrictions with the recent surge in COVID-19 Delta variant infections, the Transportation Security Administration has screened an average of nearly two billion people over the past seven days at  U.S. airports. Also, last month, executives said that international travel has started to recover after remaining largely missing from airlines’ rebound.

Furthermore, solid progress on the vaccination front and increasing disposable income will likely help the industry recover faster. In fact, the global airline industry is expected to reach $744 billion by 2026, registering a 12.7% CAGR.

Hence, Wall Street analysts expect prominent airline stocks Delta Airlines Inc. (DAL), Alaska Air Group Inc. (ALK), and Allegiant Travel Company (ALGT) to rally by more than 35% in price in the coming months.

Delta Airlines Inc. (DAL)

DAL operates scheduled passenger and freight flights across the United States and worldwide. Airline and Refinery are the two operational segments of the  Atlanta, Ga.-based company. In addition, the company offers third-party customers vacation packages, aircraft charters, aircraft maintenance, repair, and overhaul services.

Last month, DAL announced that it had begun an offer to purchase its outstanding debt for cash up to a maximum of $1.0 billion, excluding accrued and unpaid interest. This decision exhibits the company’s robust financial health.

DAL’s revenue came in at $7.13 billion in the second quarter, ended June 30, 2021. Its cash & cash equivalents grew 278.28% from their year-ago value to $11.46 billion. The company reported $652 million in net income, while its EPS amounted to $1.02 over this period.

DAL’s EPS is expected to increase 64.9% in the current year. A $27.32 billion consensus revenue estimate for its fiscal year 2021 represents a 59.8% increase from the same period last year. The stock has gained 44.6% over the past year and 6.9% over the past nine months.

Of the 14 Wall Street analysts that have provided ratings for the stock,11 rated it Buy, and three rated it a Hold. Closing yesterday’s trading session at $40.46, the average analyst price target of $57.69 represents a potential 42.6% upside.

Alaska Air Group Inc. (ALK)

ALK provides passenger and freight air transportation services through its subsidiaries. Mainline; Regional; and Horizon are the three segments of the company. The Seattle, Wash.-based company operates in more than 115 locations across the United States and North America.

Last month, ALK renewed and expanded its SabreSonic passenger service system partnership with SABR, the premier software and technology supplier that powers the worldwide travel industry. This move should  enable the company to improve its operational efficiency and drive business growth.

In the second quarter, ended June 30, 2021, ALK’s revenue increased 262.7% year-over-year to $1.53 billion. The company reported $549 million in operating income, compared to a $288 million operating loss in the prior-year quarter. Its net income came in at $397 million for this period, versus a $214 million net loss in the first quarter of 2020. The company’s EPS came in at $3.15, compared to a $1.74 loss per share in the prior-year period.

The company’s EPS is expected to grow 70.4% in the current year. Analysts expect ALK’s revenue to increase 75.9% year-over-year to $5.97 billion in its  fiscal year 2021. The stock has gained 55.3% over the past year and 9.4% year-to-date.

All the five Wall Street analysts that have provided ratings for the stock rated it Buy. The $80.75 consensus price target represents a 38.1% potential gain from its last closing price of $58.47.

Allegiant Travel Company (ALGT)

Las Vegas-based ALGT is a leisure travel company that caters to people in underserved cities around the United States. The company provides scheduled air transportation between underserved cities and leisure destinations on low-frequency, nonstop flights. It also offers third-party travel products, such as hotel rooms and ground transportation, and air transportation services, both year-round and on an ad-hoc basis, through fixed-fee agreements and charter services.

This month, ALGT announced that it aims to open two additional aircraft and crew bases at Flint Bishop International Airport (FNT) and Appleton International Airport (ATW) during the first quarter of its fiscal year 2022. The new bases are key components of ALGT's expansion plan, allowing the airline's all-nonstop network to provide more routes and frequencies to leisure passengers.

During the second quarter, ended June 30, 2021, ALGT’s revenue increased 254.4% year-over-year to $472.4 million. The company reported $138.9 million in operating income, versus a $113.3 million operating loss in the prior-year quarter. Its net income came in at $95 million for this period, compared to a $93.1 million net loss in the first quarter of 2020. The company’s EPS came in at $5.49, compared to a $5.85 loss per share in the prior-year period.

ALGT is expected to see 65.5% revenue growth in the current year. Its EPS is estimated to increase 140.7% year-over-year to $3.8 in the current year. ALGT's stock has gained 272.6% over the past year and 1627.3% over the past nine months.

All the seven Wall Street analysts that have provided ratings for the stock rated it a Buy. Currently trading at $194.74, the average analyst price target of $272.57 represents a 40% potential upside.


DAL shares were trading at $40.49 per share on Wednesday morning, up $0.03 (+0.07%). Year-to-date, DAL has gained 0.70%, versus a 19.20% rise in the benchmark S&P 500 index during the same period.



About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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