Buy This, Not That: Clear Skies Ahead for Airline Stocks?

Shah Gilani|May 8, 2024

Back in 2020… airports were ghost towns. The airline industry was on its knees.

Now… travel record after record has been broken.

Does that mean airline stocks are set for clear skies ahead?

That’s what I’m looking at in this week’s Buy This, Not That episode.

I put six of the biggest airline companies to the test.

When we look at the numbers… which are BUYS, and which are NOT?

It’s in the latest episode of Buy This, Not That… your exclusive guide to the stocks that are worthy of your money – NOW.

Click on the thumbnail below to watch.

TRANSCRIPT

Hey, everybody. Shah Gilani here with your weekly BTNT, as in Buy This, Not That. Going to cover the major airline stocks today. The airline companies, some of them been doing well, the stocks. Some of them have been doing well. Others, not so much.

I don’t know about you guys, but everywhere I have been – and I’ve been a lot of places last couple of years since post COVID – travel has been crazy.

Every airport I see is expanding.

Finally, LaGuardia looks like it’s out of the third world and JFK the same. As far as New York airports go, they were the worst, pretty sad. But every other airport, even small municipal airports that I’ve been to, they’re expanding. Why?

Because traffic is insane. People are out there traveling. So the airline stocks have done well, some of them, but the picture isn’t the same for everyone.

So off the top, we’re going to go to Delta.

Symbol is DAL. So Delta Airlines has had a huge run up. Now, back on October 27, 2023, so not that long ago, a bunch of these stocks hit their lows for reasons because of rising rates for the most part. Gas prices were rising, so their fuel costs were rising.

So they were getting beaten up even though there were still the lots of miles passenger miles were at being racked up, but their costs were increasing. And they had some concessions that they had to make to pilots and to staff. So, as far as wages, they were rising. So stocks got hit.

And back on 10/27, Delta saw a low of $30.65.

$30.65.

It’s up more than 70% since then, so it’s had a pretty great straight up move from those October lows. Now, this is a $33.69 billion market cap company. Revenue of $59 billion, little more than that. Profit margin’s pretty healthy. For the airline business, 8.48%. Balance sheet is pretty good. So all in all, yes, of course, it has debt because all the airlines have debt, but the balance sheet is manageable as far as that debt.

Its chart looks really good, but to me, it’s kind of had its run. It’s a little scary buying Delta up here or buying any airline stock that’s made new highs given the fact that, yes, rates are going to probably remain higher for longer. If gas prices tick up, they’re going to have some problems.

Is the consumer getting tapped out? That’s the question. I’m starting to see evidence of that. Yes.

We’re going into the summer season and things should be good, but wages are still rising. So I like Delta, but I don’t think I would chase it up here trading around $52 and change right now. If I was going to take a position, I’d wait to see if it came down in the mid-$40s and maybe try and buy some Delta there, see if it has a run. But from here, I’m not sure how high it’s going to go.

Yes. It can go higher, but I think given the amount of capital you would have to apply this, I’d probably put my money elsewhere. But, again, if it came back down to the mid-$40s, I’d probably buy some Delta. We’d have a pretty tight stop.

Next up, United Airlines, symbol UAL.

Now United, on the same day, back in October of last year – it’s trading at $53.24 now – it got down to its low of $33.90, so it’s up 57%. Again, that’s a pretty nice move, but its balance sheet is not nearly as nice. And not that Delta’s is great, but it’s, I’d say, nice as far as being kind, but United is just not as nice.

So it’s levered free cash flow, which is important because that’s the money that’s left over after your operating expenses, after all your interest payments, is -$1.35 billion. That’s a little worrisome. So they don’t have money to play with to expand and do other things. They have to raise more debt if they’re going to buy more planes or whatever else they need to do to expand.

So I’m not so great on that. $17 billion market cap, $54 billion-plus in revenue, profit margin, 4.90%. Alright? A lot less than Delta’s 8.48%.

So I would maybe if I’m going to take a shot at Delta, I would maybe take a shot at United. But here, trading at $53 and change, I want to see it in the low $40s and then again with a tight stop. But is this my cup of tea that chases airline stocks like this even though the chart looks pretty decent? No.

Not really. So if you really are inclined to go into airlines, I probably would choose Delta over United.

Next up, American Airlines. Well, American used to be just really the, I thought, the greatest airline. Certainly gone downhill. The chart is absolutely ugly. American Airlines, symbol AAL, trading at $14.38 right now. There’s been really no upswing in its chart.

It’s virtually flat and kinda rolling over even a little bit. So here’s a $9.35 billion market cap company, $53 billion in revenue, and the profit margin, 0.94%. Right? So not even 1% profit margin.

So, no, don’t buy American Airlines. Its 200-day is is it’s been kind of flat and going down, not good. The 50-day moving average is about to cross over and under the 200-day. So that’s a technical no-no to be trying to buy that.

It’s like trying to catch a falling knife. So as far as American Airlines, AAL, NOT.

Next up, going to go to Southwest. I fly on Southwest a lot.

Symbol LUV trading at $27 and change.

$16 billion market cap. $26 billion in revenue. Profit margin, bummer, 1.47%. So that’s the problem with airlines.

They look good, and their flights are busy and packed for the most part. But if you don’t have a good profit margin, you know, your costs are high. You got if you got problems, people. It’s not coming down to the to the bottom line here.

Balance sheet is okay.

This pays a dividend. We had 2.67% dividend yield on Southwest, on LUV, but there’s a problem here. The cost of that dividend to pay that 2.67% yield is about $430 million-plus. Now, the net income available to common shareholders, which is the final measure far as I’m concerned in terms of, like, what do you have to pay common shareholders in terms of dividend, is $393 million.

So they’re short. They can’t even pay the dividend, and the net income available to come, so they’re going to have to borrow to pay the dividend or cut the dividend. I wouldn’t wanna own that stock. So NOT, people.

Far as LUV, sorry. NOT.

Next up, JetBlue, JBLU. JetBlue trading around $5.68. That’s cheap, isn’t it? Yeah. But it’s cheap for a reason.

Market cap, $1.93 billion.

Revenue, $9.5 billion.

Nice. Profit margin, -8.78%. So right off the bat, NOT, people, just NOT. Levered free cash flow, -$1.11 billion. That’s a hole. It’s losing money in terms of the net income available to common shareholders, and they wanted to merge with Spirit.

So JetBlue, NOT, period.

Next up, Spirit.

Symbol, SAVE. That’s Spirit. Now Spirit and JetBlue wanted to merge in a valued merger of about $3.8 billion. The reason they wanted to work, who knows what they were trying to do because neither one of them makes sense on its own.

So together, they’re going to make less sense. But FTC stopped that. So as far as the Clayton Act Trust Act, that that ain’t going to happen. And they actually pulled apart and said, we’re, you know, we’re we’re breaking up the merger, because they weren’t going to be allowed to do it anyway.

Now Spirit, $363 million market cap. It’s trading at $3.08. If you look at things, like, that’s really cheap. Take a flyer on it.

Think again. Yes. That’s cheap in terms of market cap. Revenue, $5.2 billion, but they can’t make any money.

The profit margin, -9.25%. So, yes, it’s cheap. It’s cheap for a reason, people. Their EBITDA is -$264 million.

Net income available to common shareholders is -$486 million. It’s got the worst balance sheet of any of them. So what JetBlue is trying to do merging with Spirit, I have no idea. But don’t buy.

It’s cheap for a reason, and it’s likely to get cheaper. So the answer as far as Spirit SAB is NOT.

There you have it. I’ll catch you guys next week. Cheers.