Three Airline Stocks That May Be Set to Soar
This week, we use AAII’s A+ Investor Stock Grades to provide insight into three airline stocks. With airline industry revenues projected to surpass $1 trillion in 2025, should you consider the three stocks of Alaska Air Group Inc. (ALK), Sun Country Airlines Holdings Inc. (SNCY) and United Airlines Holdings Inc. (UAL)?
Airline Stocks Recent News
The International Air Transport Association (IATA) has projected significant growth for the global airline industry in 2025, driven by an increase in travel demand. Passenger numbers are projected to increase 6.7% to 5.2 billion. Net profits are projected to grow 16.2% to $36.6 billion, reflecting a net profit margin of 3.6%.
Lower jet fuel prices are anticipated to support this profitability boost. Fuel costs are expected to decline 12.1%, from an average of $99 per barrel in 2024 to an average of $87 per barrel in 2025. Despite a 6% increase in fuel consumption, total spending on fuel is expected to decrease 4.8%, totaling $248 billion. This reduction will lower fuel’s share of operating costs from 28.9% in 2024 to 26.4% in 2025, improving overall cost efficiency for airlines.
With total industry revenues poised to grow, companies such as Alaska Air, Sun Country Airlines and United Airlines may offer attractive opportunities for individual investors seeking exposure to the sector’s recovery and expansion.
Grading Airline Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades. They evaluate companies across five factors that research and real-world investment results indicate to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three airline stocks — Alaska Air, Sun Country Airlines and United Airlines — based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Airline Stocks
What the A+ Stock Grades Reveal
Alaska Air Group Inc. (ALK), through its subsidiaries, operates as an airline company. It manages operations through three segments: mainline, regional and Horizon. The company provides scheduled air transportation services for passengers and cargo using Boeing jet aircraft across the U.S., as well as parts of Canada, Mexico, Costa Rica, Belize, Guatemala and the Bahamas. Additionally, it offers passenger services on shorter-distance routes within the U.S., Canada and Mexico. Founded in 1932, Alaska Air is headquartered in Seattle, Washington.
Alaska Air has a Value Grade of B, based on its Value Score of 61, which is good value. Higher scores indicate a more attractive stock for value investors and, thus, a better grade. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA).
Alaska Air has an enterprise-value-to-EBITDA ratio of 6.9, which ranks in the 20th percentile among all U.S.-listed stocks. Its price-to-sales ratio is 0.81, which ranks in the 27th percentile and is below the sector median of 1.36. This favorable ratio suggests that Alaska Air’s stock may be relatively cheap compared to similar companies in its sector.
Alaska Air has a Momentum Grade of A, based on its Momentum Score of 93. This means that the stock’s momentum is very strong in terms of its weighted relative price strength over the last four quarters. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%. The quarterly ranks are 93, 79, 18 and 90, sequentially from the most recent quarter, with higher ranks signaling stronger price momentum. The weighted four-quarter relative price strength is 22.0%.
Alaska Air has a Growth Grade of B, which is strong. The components of the Growth Composite Score consider a company’s success in growing sales on a year-over-year and long-term annualized basis and its ability to consistently generate positive cash from its core operations. The company has a five-year annualized sales growth rate of 4.8% and has generated positive annual cash from operations in four out of the past five fiscal years.
Sun Country Airlines Holdings Inc. (SNCY), founded in 1983 and headquartered in Minneapolis, Minnesota, is an air carrier providing scheduled passenger, air cargo, charter transportation and related services across the U.S. and internationally. Operating through its passenger and cargo segments, the company also offers crew, maintenance and insurance services under various service contracts, along with a loyalty rewards program. As of December 31, 2023, its fleet consisted of 60 Boeing 737-NG aircraft, including 42 passenger planes, 12 cargo planes and six leased to unaffiliated airlines. Sun Country Airlines serves a wide range of customers, such as leisure travelers, individuals visiting friends and relatives, charter and cargo clients, military branches, collegiate and professional sports teams, wholesale tour operators, schools, and businesses, with services accessible through its website, call center and travel agents.
Sun Country Airlines has a Quality Grade of B, based on a score of 77, which is strong. Higher-quality stocks possess traits associated with upside potential and reduced downside risk. The Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. To be assigned a Quality Score stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
Sun Country Airlines ranks strongly in terms of its buyback yield and F-Score. It has a buyback yield of 4.6% and an F-Score of 6. The F-Score is a number between 0 and 9 that assesses the strength of a company’s financial position. It considers the profitability, leverage, liquidity and operating efficiency of a company.
The one weak component in the stock’s Quality Grade is its return on invested capital of 11.3%, which ranks in the lowest 43rd percentile of all stocks.
Sun Country Airlines has a Value Grade of A, based on a score of 81, which is deep value. The company ranks in the cheapest 21st percentile for its enterprise-value-to-EBITDA ratio and in the cheapest 28th percentile for its price-to-sales ratio. The company has an enterprise-value-to-EBITDA ratio of 7.0 and a price-to-sales ratio of 0.85. A lower price-to-free-cash-flow ratio is also considered better value, and Sun Country Airlines has a price-to-free-cash-flow ratio of 9.2, compared to the sector median of 27.6. The company has a shareholder yield of 4.6%, which ranks in the 16th percentile.
The company has a Momentum Grade of A, based on its Momentum Score of 83. This means that the stock’s momentum is very strong in terms of its weighted relative price strength over the last four quarters. The quarterly ranks are 90, 50, 15 and 84, sequentially from the most recent quarter. The weighted four-quarter relative price strength is 9.0%.
United Airlines Holdings Inc. (UAL), incorporated in 1968 and headquartered in Chicago, Illinois, provides air transportation services through its subsidiaries across North America, Asia, Europe, Africa, the Pacific, the Middle East and Latin America. The company transports passengers and cargo using its mainline and regional fleets and offers various ancillary services, including catering, ground handling, flight training through its flight academy and maintenance services for third parties. Formerly known as United Continental Holdings Inc., the company adopted its current name in June 2019.
United Airlines has a Quality Grade of B, based on a score of 68, which is strong. The company ranks strongly in terms of its change in total liabilities to assets, return on assets and gross income to assets. Its change in total liabilities to assets of –4.3% ranks in the 80th percentile among all U.S.-listed stocks. Its return on assets of 3.8% ranks in the 67th percentile. It’s gross income to assets of 25.7% ranks in the 66th percentile.
The company’s Growth Grade is B, which is strong. United Airlines has realized positive annual cash from operations in four out of the past five fiscal years. It also has a five-year annualized sales growth rate of 5.4%.
Earnings estimate revisions indicate whether analysts’ expectations for the firm’s profits have improved or worsened. United Airlines has an Earnings Estimate Revisions Grade of B, based on a score of 70, which is positive. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the increases in consensus earnings estimate for the current fiscal year over the past month and past three months.
United Airlines reported a positive earnings surprise of 5.0% for the third quarter of 2024. In the second quarter, it reported a positive earnings surprise of 5.5%. Over the last month, the consensus earnings estimate for full-year 2024 has been revised upward from $5.014 to $5.057 per share. Four analysts have raised their full-year earnings forecasts while three have reduced them.
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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
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