For Immediate Release
Chicago, IL – June 7, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Copa Holdings CPA, Controladora Vuela Compania de Aviacion or Volaris VLRS and Allegiant Travel Co. ALGT.
Here are highlights from Tuesday’s Analyst Blog:
3 Airline Stocks to Buy Post-IATA’s Bullish FY2023 Projection
Stocks in the Zacks Airline industry are flying high again after being battered during the COVID-19 pandemic. The positive sentiment surrounding the industry is mainly owing to the stronger-than-expected recovery in air travel demand from the pandemic lows.
While the demand for leisure travel is exceptionally strong, the fact that international travel is bouncing back nicely is encouraging. Passenger volumes are likely to move further northward in the summer season. Per Airlines for America, US airlines are anticipated to carry 257 million passengers from Jun 1 to Aug 31, 2023. The projection marks an all-time high.
The latest positive update on this key industry is the bullish projection for 2023 by the International Air Transport Association or IATA despite the existing economic uncertainties. Besides the uptick in passenger volumes, the decline in fuel costs contributed to the IATA doubling its current-year forecast for net profits. Given the positivity surrounding the industry, we believe betting on airline stocks is like Copa Holdings, Controladora Vuela Compania de Aviacion or Volaris and Allegiant Travel Co. is a prudent move.
IATA’s FY23 Forecast in Detail
Owing to the buoyant air travel demand scenario, IATA now expects the industry to generate a net profit of $9.8 billion in 2023 compared to $4.7 billion estimated in December last year. The top line in 2023 is now anticipated to be $803 billion compared to the previous estimate of $779 billion. The revised revenue forecast indicates a 9.7% increase from the 2022 actuals. In the event of the revenue forecast coming true, 2023 would be the first year since 2019 (pre-pandemic) when total revenue for airlines across the globe would exceed $800 billion. Notably, revenues were $838 billion in 2019.
Passenger revenues are the biggest driver of the rosy projection for 2023. Per IATA, passenger revenues in 2023 are now anticipated to be $546 billion compared to the previous estimate of $522 billion. The revised revenue forecast indicates a 27% increase from the 2022 actuals. Per IATA, 4.35 billion people are likely to take to the skies in 2023, which is near the 2019 actual of 4.54 billion.
Cargo revenues in 2023 are expected to be $142.3 billion, which, although lower than the 2021 and 2020 actuals of $210 billion and $207 billion, respectively, are still $42.3 billion higher than 2019 actuals.
Even though total costs in the current year are projected to be $781 billion, 8.1% higher than the 2022 actuals due to high labor and infrastructure costs apart from capacity shortages, oil prices are likely to be lower. Per IATA, the average jet fuel cost is expected to be $98.5 per barrel in 2023 (the earlier forecast was $111.9 per barrel). The total fuel bill in 2023 is expected to be $215 billion, lower than the previous estimate of $229 billion.
Driven by higher revenues and lower fuel costs, operating profit for the industry is now estimated to be $22.4 billion in 2023, well above the previous estimate of $3.2 billion. The current operating profit forecast also compares favorably with the actual 2022.
On a region-wise basis, North American carriers are expected to be the major contributors to the current-year net profit projection. They are expected to reap net profits of $11.5 billion this year, higher than the 2022 level of $9.1 billion. Reflecting the improved air-travel demand scenario, passenger demand this year is likely to grow 16.5% year over year. European carriers are expected to reap net profits of $5.1 billion. The performance of carriers in regions like Latin America and Asia Pacific is also likely to improve mainly owing to higher passenger volumes.
3 Airline Stocks to Bet On Now
Given this encouraging backdrop, we believe airline stocks should grace one’s portfolio for healthy returns. Below, we present three airline stocks having a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Score of A or B. Moreover, the following companies have witnessed favorable earnings estimate revisions for the current year. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities for investors.
You can see the complete list of today’s Zacks #1 Rank stocks here.
All the selected stocks have outperformed the industry in terms of year-to-date price performance.
Copa Holdings, currently sporting a Zacks Rank #1, is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased by 28.5% from first-quarter 2019 levels due to higher yields.
CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% at this Latin American carrier from first-quarter 2019 levels on higher volumes and yields.
Copa Holdings’ fleet modernization and cost-management efforts are commendable. The Zacks Consensus Estimate for current-year earnings has been revised 21.3% upward over the past 60 days. CPA currently has a VGM Score of A.
Allegiant is seeing a steady recovery in domestic and leisure air travel demand. In first-quarter 2023, this Las Vegas, NV-based company’s operating revenues grew 29.9% on a year-over-year basis. Passenger revenues, accounting for 93.7% of the top line, increased 31.3% on a year-over-year basis.
Allegiant’s fleet-modernization efforts are encouraging. The Zacks Consensus Estimate for ALGT’s current-year earnings has been revised upward by 42.6% in the past 60 days. Allegiant currently sports a Zacks Rank #1 and has a VGM Score of A.
Volaris, based in Mexico, is also being well-served by the uptick in air-travel demand. Riding on the upbeat passenger volumes, revenue passenger miles at Volaris increased 18.3% year over year in April. Load factor (% of seats occupied by passengers) increased by 1.1 percentage points to 85.8%.
The Zacks Consensus Estimate for VLRS’ current-year earnings has been revised upward by 15.9% in the past 60 days. The stock currently carries a Zacks Rank #2. VLRS currently has a VGM Score of B.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets were identified and described or would be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Copa Holdings, SA (CPA) : Free Stock Analysis Report
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Controladora Vuela Compania de Aviacion, SAB de CV (VLRS) : Free Stock Analysis Report
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