The airline industry remains resilient despite rising fuel prices thanks to robust travel demand. Moreover, the integration of advanced technologies positions the industry well for steady growth. Therefore, investors could consider buying shares of Corporación América Airports S.A. (CAAP), Deutsche Lufthansa AG (DLAKY) and Air Canada (ACDVF), which depict exceptional resilience.
According to Airlines Reporting Corp. (ARC) data, U.S. travel agency air ticket sales climbed 3% year-over-year to $7.6 billion in September 2023. Total passenger trips increased 4% year-over-year to 22.1 million, with a 3% increase in domestic trips and a 6% rise in international trips.
Steve Solomon, chief commercial officer at ARC, said, “Air travel demand has remained steady in 2023 while year-over-year sales and passenger trips are reverting to historic seasonality patterns.”
The International Air Transport Association (IATA) reported that total traffic increased by 28.4% in August 2023 compared to August 2022. International traffic increased by 30.4% over the same period. All markets increased by double digits year-over-year. International RPKs have reached 88.5% of their August 2019 levels.
Driven by growing travel demand and rising disposable incomes, the North American aviation market is expected to be worth $79.47 billion in 2023 and $91.68 billion by 2028, increasing at a 2.9% CAGR.
The AI in aviation market is expected to grow at a 20% CAGR until 2032. The increasing adoption of AI in the aviation industry, such as autonomous aircraft and predictive maintenance systems, should shape the aviation market’s prospects. These advancements are not only enhancing operational efficiency but also improving passenger safety and experience.
Considering these conducive trends, let’s look at the fundamentals of the three Airlines stock picks, beginning with number 3.
Stock #3: Corporación América Airports S.A. (CAAP)
Based in Luxembourg City, Luxembourg, CAAP, through its subsidiaries, acquires, develops, and operates airport concessions. It operates 53 airports in Latin America, Europe, and Eurasia.
CAAP’s forward EV/EBITDA multiple of 4.81 is 55.4% lower than the industry average of 10.78. Its forward EV/EBIT multiple of 6.49% is 55.9% lower than the industry average of 14.70.
CAAP’s trailing-12-month EBIT margin of 23.58% is 140.5% higher than the 9.80% industry average. Its trailing-12-month levered FCF margin of 25.60% is 351.6% higher than the 5.67% industry average.
For the fiscal second quarter, which ended on June 30, 2023, CAAP’s revenue increased 27.1% year-over-year to $422.70 million. Its operating income rose 43.1% year-over-year to $110.40 million.
In addition, during the same period, the company’s attributable net income and EPS amounted to $69.80 million and $0.43, respectively. Its adjusted EBITDA increased 36.4% from the prior-year quarter to $150.90 million.
Street expects CAAP’s revenue to increase 5.9% year-over-year to $1.46 billion for the year ending December 2023. Its EPS is expected to grow 6.1% year-over-year to $1.11 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 42.8% to close the last trading session at $11.11.
CAAP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CAAP also has a B grade for Sentiment and Momentum. It is ranked #11 out of 29 stocks in the Airlines industry. Click here to see the additional POWR Ratings for Growth, Value, Stability, and Quality for CAAP.
Stock #2: Deutsche Lufthansa AG (DLAKY)
Headquartered in Cologne, Germany, DLAKY operates as an aviation company in Germany and internationally. The company’s Network Airlines segment offers passenger services. Its Eurowings segment provides passenger services through a route network of over 100 destinations in over 50 countries.
DLAKY’s forward EV/Sales multiple of 0.39 is 76.4% lower than the industry average of 1.63. Its forward Price/Sales multiple of 0.22% is 82.5% lower than the industry average of 1.27.
DLAKY’s trailing-12-month CAPEX / Sales of 8.33% is 183.8% higher than the 2.94% industry average. Its trailing-12-month ROCE of 19.26% is 42.3% higher than the 13.54% industry average.
DLAKY’s total revenues for the fiscal second quarter ended June 30, 2023, increased 17.4% year-over-year to €9.39 billion ($9.94 billion). Its net profit was €881 million ($932.99 million), up 250.2% year-over-year. Its EPS increased 236.4% year-over-year to €0.74.
The consensus revenue estimate of 38.71 billion for the year ending December 2023 represents an 11.1% increase year-over-year. Its EPS is expected to grow 112.7% year-over-year to $1.49 for the same period. DLAKY’s shares have gained 9.2% over the past year to close the last trading session at $7.03.
DLAKY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has a B grade for Growth and Value. To see additional DLAKY’s ratings for Sentiment, Momentum, Stability and Quality, click here.
Stock #1: Air Canada (ACDVF)
Headquartered in Saint-Laurent, Canada, ACDVF provides domestic, U.S. transborder, and international airline services. The company provides scheduled passenger services under the Air Canada Vacations and Air Canada Rouge brand names in the Canadian market, the Canada-U.S. transborder market, and the international market to and from Canada.
ACDVF’s forward non-GAAP P/E multiple of 4.53 is 73% lower than the industry average of 16.77. Its forward Price/Sales multiple of 0.28% is 77.7% lower than the industry average of 1.27.
ACDVF’s trailing-12-month CAPEX / Sales of 8.05% is 174.2% higher than the 2.94% industry average. Its trailing-12-month levered FCF margin of 10.1% is 78.5% higher than the 5.67% industry average.
During the fiscal second quarter that ended on June 30, 2023, ACDVF’s operating revenues increased 36.3% year-over-year to CAD5.43 billion ($4 billion). Its adjusted EBITDA increased 692.2% year-over-year to CAD1.22 billion ($900.14 million), while its net income came in at CAD838 million ($618.30 million), compared to a net loss of CAD386 million ($284.80 million) for the year-ago quarter.
Analysts expect ACDVF’s revenue to increase 28.1% year-over-year to $15.73 billion for the year ending December 2023. Its EPS is expected to be $2.75 for the same period. Shares of ACDVF have lost 7.4% over the past year to close the last trading session at $12.25.
It’s no surprise that ACDVF has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and a B for Value and Quality. It is ranked #2 in the Airlines industry.
Beyond what is stated above, we’ve also rated ACDVF for Stability, Sentiment and Momentum. Get all ACDVF ratings here.
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DLAKY shares were unchanged in premarket trading Monday. Year-to-date, DLAKY has declined -14.63%, versus a 11.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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