It is no secret that air travel has become a depressing experience during the pandemic. However, there is money to be made in this sector. People are clearly willing to fly even amidst a once-in-a-century pandemic.
Investors should resist the temptation to scoop up Airline ETFs. Instead, it is better to zero in on specific airline stocks that are undervalued and those likely to increase their market share moving forward. The challenge lies in sorting through the publicly traded airlines to select the cream of the crop as the pandemic continues to change the economy, the airline industry, and life as we know it.
Delta (DAL) and SkyWest (SKYW) are two airlines with contrasting POWR Rating grades. Below, we delve into each of these stocks to give investors a better sense of which is the better buy.
DAL
DAL is one of the top four airlines that dominates the United States market. Based in Atlanta, Georgia, DAL raked in more than $17 billion in 2020 alone. DAL has a beta of 1.41, meaning it probably won't prove volatile, especially when juxtaposed against high-flying tech stocks investors just can't get enough of.
DAL has a C POWR Rating grade. This mediocre grade signifies DAL is a Hold. DAL has a B Growth component grade yet it has D grades in the Sentiment and Stability components. Click here to find out how DAL performs in the additional POWR Rating components of Quality, Momentum, and Value. DAL is ranked in the top half of its segment, slotting in at 14th out of 31 stocks. Investors can learn more about the Airlines segment by clicking here.
DAL recently announced it anticipates its upcoming quarterly earnings will be underwhelming. Though DAL will likely record an adjusted profit for the quarter, its revenue will probably be toward the lower end of previously provided guidance. DAL is still considered to be an industry leader yet its unit costs are still high, essentially capping its potential profit. However, DAL has publicized its plans to replace its outdated planes with new models including the widely revered Airbus A321neo.
The analysts are certainly bullish on DAL, setting an average target price of $55.58. If the stock hits this price, it will have climbed by more than 35%. DAL's average analyst price target has increased by $8.84 in the prior 29 weeks. A total of 22 analysts have provided DAL recommendations. Exactly eight of these analysts consider DAL to be a Strong Buy, seven consider it to be a Buy, seven consider it to be a Hold and none view it as a Sell or Strong Sell.
SKYW
SKYW, based in beautiful St. George, Utah, has operated as a regional airline dating back to 1972. SKYW’s subsidiary SkyWest Airlines transports passengers throughout the Midwest and Western parts of the United States. The company also operates flights in Mexico and Canada.
SKYW has a forward P/E ratio of 13.92. This is a reasonable ratio, especially when you factor in the stock is trading at the midway point between its 52-week low of $27.44 and its 52-week high of $61.16.
SKYW is a Buy as it has a B POWR Rating grade. The stock also has B grades in the Quality, Value and Growth components of the POWR Ratings. SKYW has C grades in the Momentum component. Click here to learn more about SKYW's POWR Rating components including its grades in the Sentiment and Stability components.
SKYW is the top dog in the Airline segment, slotting in at number one overall out of 31 publicly traded companies. Investors looking for more information about the airlines' sector will find it by clicking here.
SKYW is somewhat volatile as evidenced by its 2.05 beta. If you are a risk-averse investor, SKYW might not be the best stock for your portfolio. However, SKYW has reduced its debt in the prior year, paving the way for a return to the black. SKYW's profitability is meaningful because the airlines' sector as a whole has struggled during the pandemic.
Which is the Better Buy?
SKYW is clearly the better play. DAL might eventually move up to a B POWR Rating when the pandemic ends. However, for the time being, SKYW is one of the best airline stocks you can own.
DAL shares were trading at $40.10 per share on Thursday afternoon, up to $0.46 (+1.16%). Year-to-date, DAL has declined -0.27%, versus a 20.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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