Air travel has been an example of an economy that is becoming increasingly divided. Despite evidence that consumers are cutting back on discretionary spending, such as airplane flights, other data shows that demand for air travel continues to grow. That means it’s time to look at cheap airline stocks that may benefit from this trend.
You see, although air traffic was solid in 2022 and 2023, it was still below 2019 levels. However, according to the International Air Transport Association’s (IATA) 20-year forecast issued in 2022, the next two years will be when the airline industry can finally say it’s back. That’s because domestic and international demand will exceed 2019 levels.
However, because of the sharp sell-off in airline stocks in early 2020, many of the stocks in this category can still be considered undervalued. Price doesn’t always equal value, but here are three cheap airline stocks to buy because of the value they offer.
Delta Air Lines (DAL)
Nothing says “we’re back in business” than revenue and earnings that continue to be higher year-over-year (YoY). And that’s exactly what’s been happening with Delta Air Lines (NYSE:DAL). The company is one of the most attractive airline stocks to buy, as its top line and bottom line numbers continue to beat from the same quarter YoY. This is at a time when the easy comparisons have ended.
In addition to posting strong revenue and earnings numbers, the company is also proactively working down the debt it assumed in early 2020 and increasing its free cash flow. Delta also reinstated its dividend in 2023 and will likely increase the payout in the coming quarters.
Not surprisingly, DAL stock is up 58% in the last 12 months. But it has higher to climb. An impressive 14 analysts give the stock a Strong Buy rating with a consensus price target of $60.99, putting the stock within approximately 1% of its all-time high.
Alaska Air Group (ALK)
It may surprise you to see Alaska Air Group (NYSE:ALK) on this list of cheap airline stocks. But ALK stock is up about 2% in the last 12 months. And with all the negative headlines that have hit the company in the last few months alone, that’s no small accomplishment.
In the company’s last quarter, it beat analysts’ expectations on the top and bottom lines, even though both numbers were lower YoY. But the real excitement is the company’s proposed merger with Hawaiian Airlines a subsidiary of Hawaiian Holdings (NASDAQ:HA). If successful, Alaska would be realizing approximately $2.8 billion in revenue and $235 million in net synergies.
Analysts have a consensus price target of $58.57 on ALK stock, a 35% increase. Furthermore, 11 analysts give the stock a Strong Buy rating.
Sun Country Airlines (SNCY)
Sun Country Airlines (NASDAQ:SNCY) is the worst-performing stock in this group of cheap airline stocks. The company has a unique hybrid business model that, in theory, should provide the company with diversified revenue streams: passenger, charter and cargo. I say, in theory, because while the company touts this ability to shift capacity as a reason to buy its stock, it’s not doing much by way of shifting capacity in the first two quarters of 2024.
That doesn’t really explain the 39% decline in Sun Country’s stock despite two quarters where it has delivered higher YoY revenue. And in one of those quarters, it beat earnings expectations as well.
The more likely reason for the dip in SNCY stock is that it is still a tiny airline with a market cap of just over $579 million as of May 15. Small-cap stocks are out of favor right now, but if the Federal Reserve lowers rates as expected, sentiment may change quickly. That makes Sun Country one stock that speculative investors should have on their watchlist.
On the date of publication, Chris Markoch did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
