Down but not out. That was the story of the major airlines for much of 2020 after they took the mother of all batterings in the face of the COVID pandemic. But since bottoming out around the start of last summer, the story has been one of recovery and potential. As the global vaccine rollout continues to gather pace, so too does this latest theme, and Wall Street hasn’t been slow about recognizing it.
Earlier this week, Morgan Stanley were out with some bullish comments on the travel industry overall, and two airlines in particular. They upgraded both United Airlines (NASDAQ: UAL) and Alaska Air Group (NYSE: ALK) while boosting price targets for many of their peers. In a note to clients, analyst Ravi Shanker. said "we reiterate our Attractive view on the US Airlines despite the stocks up 85% in the last 5 months. With a clear path to re-opening now in focus, we look out to 2022+ and find consensus numbers are too low given our view of strong volume and cost tailwinds. We are ~30%+ above consensus in 2023.”
Starting with United, we can tell from the stock chart alone how solid the momentum is right now. Shares are up 230% since last May and up 50% alone since the start of February. According to an internal email last week, United plans to resume hiring pilots after the program was halted last year. They’re the first of the majors to make this move back towards normalcy and it’s a bullish signal to investors. In a similar vein, the company also took their first delivery of Boeing’s 787 Dreamliner since October late last month, in another sign that things are getting back to normal.
Goldman Sachs commented on the long term recovery potential late last month and their comments still hold true and we kick on into Q2; "as we exit 2021 and enter 2022, we expect international and corporate demand to begin to recover as well, and view UAL shares as the most attractive option to gain exposure to the recovery in those end markets given its relatively larger discount to historical valuation vs. its network carrier peers; there is 31% upside to our 12-month $74 PT."
Alaska Air Group
From the Alaska side of things, their shares are already back above their pre-pandemic levels, with close to a 60% rally in the past month alone. On top of Morgan Stanley’s upgrade this week, Alaska Air Group investors have a fresh $90 price target from Goldman Sachs last month, suggesting there’s still upside of 25% from last night’s closing price.
Like United, Alaska has restarted their plane purchasing program and recently announced plans to pick up twenty three 737 MAX jets from Boeing. This kind of news is akin to a dividend increase, where management is giving investors a pretty big tell that things are looking up and they see bright days ahead. Bank of America went so far as to put Alaska at the top of their airline stocks list in March and the company hasn’t disappointed them yet.
The CDC has been issuing fresh travel guidance and passenger numbers are increasing month on month. We can be confident the airline industry has come through the worst of the pandemic, and as we look at a post-pandemic landscape there are two airlines that shine above all others right now. In terms of getting involved, you can't really go wrong by buying into United and or Alaska and in doing so you’ll get exposure to what’s being billed as one of the great economic recoveries of our time.
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