Over the past few years, the international airline landscape experienced an aggressive expansion spree through flight purchases, technology sharing, and the establishment of alliances and partnerships.
From this standpoint, it could be wise to scoop up the shares of United Airlines Holdings, Inc. (UAL), International Consolidated Airlines Group S.A. (ICAGY), and Copa Holdings, S.A. (CPA) with strong fundamentals.
The airline industry is subjected to volatility, given the political, social, and economic factors. The sector got adversely affected during the global pandemic. However, it is rebounding back to its original position gradually.
Cheered by strong travel demand and easing in oil prices, the International Air Transport Association (IATA) doubled the industry’s 2023 net profit forecast to $9.8 million from $4.7 billion, carrying more passengers to the skies. Additionally, the sector is anticipated to grow by 9.7% to $803 billion in total revenues, driven by the rebound in passenger demand.
Airlines of late have reported strong results as they prepare for a busy summer season, with travel demand showing no sign of flagging despite peaking inflation. IATA’s director general Willie Walsh opined that stronger profitability was primarily supported by cargo revenues, China’s reopening, and lower jet fuel prices.
Driven by growing travel demand, rising disposable incomes, and its importance in international trade and travel, the global airline industry market is projected to grow at a CAGR of 25.5% between 2022 and 2027.
To that end, fundamentally robust airline stocks UAL, ICAGY, and CPA could be excellent buys in August. Let’s take a close look at these stocks.
United Airlines Holdings, Inc. (UAL)
UAL is a global air transportation services provider transporting people and cargo through its mainline and regional fleets. It also offers catering, ground handling, training, and maintenance services for third parties.
Recently, the company announced the addition of 127 new, nonstop flights to more than 15 destinations, including Columbus, Ohio; Fayetteville, Arkansas and South Bend, Indiana, for some of the season’s biggest games. This strategic move bodes well for the company as it could help boost revenues while college football fans come together to support their teams.
On July 25, the company claimed that through its support from various startups, it increased its investment power to nearly $200 million and added eight new corporate partners, five months after its initial launch to increase the supply of Sustainable Aviation Fuel (SAF).
By scaling the supply of SAF, the company can reduce its carbon footprint and demonstrate its commitment to sustainability. Additionally, UAL’s efforts to increase its investment power could lead to new business opportunities and partnerships in the future.
On July 21, UAL revealed an investment in Electric Power Systems, a company producing battery technology that may be used for a broad suite of aerospace applications. This alliance should enable UAL to use EPS’s module technology to help electrify and decarbonize its operations.
In the second quarter (ended June 30, 2023), UAL’s total operating revenues increased 17.1% year-over-year to $14.18 billion, while its adjusted operating income grew 140% from the year-ago value to $2.38 billion.
Non-GAAP net income and non-GAAP EPS came in at $1.67 billion and $5.03, registering 253.9% and 251.7% improvements year-over-year, respectively. UAL’s adjusted EBITDAR increased 89% year-over-year to $3.13 billion.
Street expects UAL’s revenue to increase 11.8% year-over-year in the fiscal third quarter (ending September 2023) to $14.40 billion. Its EPS for the current quarter is expected to improve 47.2% year-over-year to $4.14. Moreover, it surpassed the EPS estimates in each of the trailing four quarters.
The stock’s trailing-12-month gross profit margin and ROTC of 33.52% and 7.66% are 11.7% and 9.2% higher than the 30.02% and 7.01% industry averages, respectively. Likewise, its trailing-12-month ROCE of 45.69% compares to the industry average of 13.62%.
The stock has gained 47.4% over the past year and 43.7% year-to-date to close the last trading session at $54.17.
UAL’s POWR Ratings reflect this promising outlook. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Sentiment. Among the 28 stocks in the A-rated Airlines industry, it is ranked #12. To see additional POWR Ratings for Growth, Momentum, Stability, and Quality for UAL, click here.
International Consolidated Airlines Group S.A. (ICAGY)
Based in Harmondsworth, the United Kingdom, ICAGY is an airline company primarily engaged in the provision of passenger and cargo transportation services globally. It also offers ground handling, trustee, storage, custody, and airport infrastructure development services, in addition to leasing and maintaining aircraft and operating tours.
For the six-month period that ended on June 30, 2023, ICAGY’s total revenue increased 45.3% year-over-year to €13.58 billion ($14.96 billion), while its cash, cash equivalents, and interest-bearing deposits improved 30.7% from the year-ago value to €12.01 billion ($13.23 billion). Also, the company’s net debt declined 26.7% year-over-year to €7.61 billion ($8.37 billion).
The company’s EPS amounted to €17.60. Net cash flows from operating activities increased 29.8% year-over-year and stood at €4.22 billion ($4.65 billion).
Analysts estimate ICAGY’s revenue and EPS for the fiscal third quarter (ending September 2023) to increase 24.3% and 25.5% year-over-year to $9.08 billion and $0.43, respectively. The company surpassed the EPS estimates in all four trailing quarters, which is promising.
ICAGY’s trailing-12-month EBIT and net income margins of 11.24% and 7.35% are 15.5% and 16.4% higher than the industry averages of 9.73% and 6.31%, respectively. Also, its trailing-12-month levered FCF margin and CAPEX/Sales ratio of 14.69% and 12.03% compares to the industry averages of 5.28% and 2.90%, respectively.
ICAGY’s shares have gained 56.3% over the past nine months and 42.1% year-to-date to close the last trading session at $4.15.
ICAGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Growth and B for Value and Stability. Within the same A-rated industry, it is ranked #14. Click here to see the other ratings of ICAGY for Momentum, Sentiment, and Quality.
Copa Holdings, S.A. (CPA)
CPA specializes in providing airline passenger and cargo services. The company offers approximately 327 daily scheduled flights to 78 destinations in 32 countries in North, Central, and South America, as well as the Caribbean from its Panama City hub.
On July 12, the company announced its primary passenger traffic statistics. The report stated that its Available Seat Miles (ASM), Revenue Passenger Mile (RPM), and load factor improved considerably at 10.7%, 14.9%, and 3.1 percentage points, respectively, compared to the last month.
The improved stats reflect the strong demand for its offerings and is expected to boost its revenues and profitability.
During the first quarter that ended on March 31, 2023, CPA’s total operating revenues amounted to $867.26 million. Its adjusted net profit improved by 435.1% from the year-ago value to $157.79 million, while its adjusted EPS stood at $3.99, up 470% year-over-year.
In addition, as of March 31, 2023, CPA's cash and cash equivalents amounted to $242.31 million compared to $122.42 million for the period ended December 31, 2022. Also, its total assets increased 3.7% from $4.69 billion (as of December 31, 2022) to $4.87 billion in the same period.
The consensus EPS estimate of $3.38 for the second quarter (ended June 30, 2023) represents a significant improvement year-over-year. The consensus revenue estimate of $812.09 million for the about-to-be-reported quarter indicates a 17.1% increase from the prior-year period. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock’s trailing-12-month ROCE and ROTA of 31.06% and 9.24% are 128.1% and 82.4% higher than the 13.62% and 5.07% industry averages, respectively. Likewise, its CAPEX/Sales ratio of 19.39% compares to the industry average of 2.90%.
Over the past year, the stock has gained 77.4% to close the last trading session at $118.92.
It’s no surprise that CPA has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality. Out of 28 stocks in the same industry, it is ranked #13.
In addition to the POWR Ratings we’ve stated above, we also have CPA’s ratings for Growth, Value, Momentum, Stability, and Sentiment. Get all CPA ratings here.
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UAL shares were trading at $54.15 per share on Monday afternoon, down $0.02 (-0.04%). Year-to-date, UAL has gained 43.63%, versus a 20.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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