Despite the challenging macroeconomic environment, the airline industry is flourishing due to robust travel demand. Airlines are expected to keep seeing substantial revenue growth thanks to the pent-up demand for travel and a strong job market.

Considering these factors, it could be wise to add fundamentally strong airline stocks Allegiant Travel Company (ALGT), Alaska Air Group, Inc. (ALK), and American Airlines Group Inc. (AAL) to one’s watchlist.

Before diving deeper into their fundamentals, let’s discuss what’s happening in the airline industry.

The airline industry experienced a dip during the pandemic but has since recovered strongly with the easing of travel restrictions worldwide and the massive demand for travel. Airlines are expected to witness significant momentum due to rising travel demand and lower jet fuel prices.

The International Air Transport Association (IATA) shared that passenger travel recovery post-COVID is ongoing. In June 2023, there was a 31% rise in total traffic compared to June 2022. For the first half of 2023, total traffic increased by 47.2% compared to the previous year.

The IATA has projected airline industry profits to reach $9.80 billion in 2023, which is more than double the previous forecast of $4.70 billion. Moreover, industry revenues are expected to reach $803 billion this year, rising 9.7% year-over-year. Investors’ interest in airline stocks is evident from the U.S. Global Jets ETF’s (JETS) 12.8% returns year-to-date.

Considering these conducive trends, let’s analyze the fundamental aspects of the three best Airlines stocks, beginning with the third choice.

Stock #3: Allegiant Travel Company (ALGT)

ALGT provides travel services and products to residents of under-served cities in the United States. The company offers scheduled air transportation on limited-frequency, nonstop flights between under-served cities and leisure destinations.

On July 11, 2023, ALGT announced six new nonstop routes to popular vacation spots this winter, with one-way fares as low as $40. These routes, starting in November, will link communities nationwide to destinations like Nashville, Portland, Phoenix/Mesa, and Florida. These additions aim to capitalize on ALGT's prior market success.

In terms of forward non-GAAP P/E, ALGT’s 8.62x is 52.4% lower than the 18.11x industry average. Its 5.23x forward EV/EBITDA is 54% lower than the 11.35x industry average. Likewise, its 8.99x forward EV/EBIT is 42.9% lower than the 15.72x industry average.

For the fiscal second quarter that ended June 30, 2023, ALGT’s total operating revenue increased 8.6% year-over-year to $683.81 million. Its operating income increased 410.6% year-over-year to $133.43 million. The company’s net income rose significantly year-over-year to $88.47 million. Its EPS came in at $4.80, representing a significant increase over the prior-year quarter.

Analysts expect ALGT’s EPS for the quarter ending March 31, 2024, to increase 7.3% year-over-year to $3.26. Its revenue for the quarter ending September 30, 2023, is expected to increase 4.5% year-over-year to $585.59 million. It surpassed the consensus EPS estimates in three of the four trailing quarters.

The stock has gained 30.7% year-to-date to close the last trading session at $88.84.

ALGT’s POWR Ratings are consistent with this outlook. It has an overall rating of C, translating to a Neutral in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #19 out of 28 stocks in the B-rated Airlines industry. It has a C grade for Value, Momentum, Stability, Sentiment, and Quality. Click here to see ALGT’s Growth rating.

Stock #2: Alaska Air Group, Inc. (ALK)

ALK, through its subsidiaries, operated airlines. The company operates through three segments: Mainline, Regional, and Horizon.

On June 9, 2023, ALK announced a new nonstop between Seattle/Everett to Honolulu. This is their first new route to Honolulu in over a decade and the longest flight from Paine Field.

In terms of forward non-GAAP P/E, ALK’s 6.57x is 63.7% lower than the 18.11x industry average. Its 0.51x forward Price/Sales is 63.6% lower than the 1.40x industry average. Likewise, its 1.20x forward Price/Book is 53.3% lower than the 2.58x industry average.

ALK’s total operating revenue for the second quarter that ended June 30, 2023, increased 6.8% year-over-year to $2.84 million. Its non-GAAP net income rose 38.2% year-over-year to $387 million. Also, its non-GAAP EPS came in at $3, representing an increase of 37% year-over-year.

Street expects ALK’s EPS and revenue for the quarter ending September 30, 2023, to increase 0.3% and 1.9% year-over-year to $2.54 and $2.88 billion, respectively. The stock has declined 2.3% year-to-date to close the last trading session at $41.97.

It has an overall rating of C, which translates to Neutral in our proprietary rating system.

It has a C grade for Value, Momentum, Sentiment, and Quality. Within the same industry, it is ranked #17. In total, we rate ALK on eight different levels. Beyond what we stated above, we also have given ALK grades for Growth and Stability. Get all the ALK ratings here.

Stock #1: American Airlines Group Inc. (AAL)

AAL operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C., as well as through partner gateways in London, Doha, Madrid, Seattle/Tacoma, Sydney, and Tokyo.

In terms of forward non-GAAP PEG, AAL’s 0.04x is 97.5% lower than the 1.76x industry average. Its 4.99x forward EV/EBITDA is 56% lower than the 11.35x industry average. Likewise, its 0.18x forward Price/Sales is 86.9% lower than the 1.40x industry average.

For the second quarter ended June 30, 2023, AAL’s operating revenues increased 4.7% year-over-year to $14.06 billion. Its operating income rose 112.7% year-over-year to $2.16 billion. Its net income increased 181.1% year-over-year to $1.34 billion. Also, its earnings per common share came in at $1.88, representing an increase of 176.5% year-over-year.

For the quarter ending September 30, 2023, AAL’s EPS and revenue are expected to increase 10.9% and 1.1% year-over-year to $0.77 and $13.61 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 15.8% year-to-date to close the last trading session at $14.73.

AAL’s fundamentals justifies its overall rating of C, which translates to Neutral in our proprietary rating system.

It has a C grade for Growth and Momentum. It is ranked #16 in the Airlines industry. To see AAL’s Value, Stability, Sentiment, and Quality ratings, click here.

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AAL shares were trading at $14.66 per share on Friday afternoon, down $0.07 (-0.48%). Year-to-date, AAL has gained 15.25%, versus a 18.70% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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