Much upside remains in Airline stocks
I always saw airlines as a strategic sector that the federal government had to rescue regardless of which political party was in power. That’s been a pretty safe bet. The carriers got $58 billion from the first CARES Act and $15 billion in the second one last December (see here). Another $15 billion is in the pipeline from the rescue act that Biden just signed.
Stocks of the three largest carriers have recovered a lot, but still trade 10-30% below their pre-pandemic peak, while the broader market is up 18% from the same base. What about valuations? Well, airlines are still expected to lose money this year, so you can’t really use 2021 P/E ratios. But the estimated P/Es after 2021 are:
The analyst projections appear to be in the doldrums for 2022 also, but my guess is they will be revised up. There appears to be some conservatism in that analysts seem to have pushed most of the earnings into 2023. But as you look further into the future, airlines look more and more attractively priced right now.
I see United, American and Delta as pretty good buy and hold opportunities for at least the next 12-24 months. These are also the largest carriers and hence would be seen as most strategic from the federal point of view.
Disclaimer: I may (and likely do!) hold positions in the financial securities that I comment on in this newsletter. These are my own views and don’t reflect those of any current or former employer. Most importantly, readers should not see this as creating any investment advisory relationship between myself and them. If you are looking for that sort of thing, please talk to a certified financial planner.