American Airlines (AAL) has surged 35% this year. Alaska Air (ALK) is up 23%. Southwest Airlines (LUV) has risen 21%. Delta Air Lines (DAL) has advanced 18%. And United Continental (UAL) has gained a measly 9%. Can they keep flying high?
Getty Images Sure, say Deutsche Bank’s Michael Linenberg and team. They explain why:
We are forecasting an industry net profit for the seasonally-challenged Mar Q of $397 mm which compares favorably to last year’s $65 mm net loss. Not only is it rare for the US airline industry to report a net profit for the Mar Q — last one was observed in 2007 — but this year’s result is especially satisfying given the disruptive weather (+80,000 cancellations) and absence of Easter. Also, we are projecting $1.4 bb of operating profit for the Mar Q, 116% higher y-o-y. In our view, the profitable Mar Q forecast represents another data point in support of how much better the US airline industry is being managed…
We believe a continuation of healthy earnings and cash flow should create greater opportunities to further shareholder-friendly agendas, as we expect a number of US carriers to either augment or introduce shareholder capital return programs (through dividends and/or share repurchases) within the next several quarters (namely [American Airlines, Alegiant Travel (ALGT), Alaska Air, Delta Air Lines, and Southwest Airlines)…we think the stocks will continue to perform well throughout the remainder of year.
Their favorites include American Airlines, United Continental, Southwest Airlines and Delta Air Lines, in that order.
Shares of American Airlines have dropped 3.6% to $34.02 today, while United Continental has fallen 2.5% to $41.24, Southwest Airlines has declined 1.6% to $22.77 and Delta Air Lines is off 1.2% to $32.63.
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