The recovery in the air travel market has been unsynchronous and unstable at times since the end of pandemic-related travel restrictions, but the trajectory is expected to be positive, with the industry on track to return to full profitability this year.
As the industry shows solid potential, fundamentally strong airline stocks Air Canada (ACDVF), Gol Linhas Aéreas Inteligentes S.A. (GOL), and Copa Holdings, S.A. (CPA) might be solid buys.
The International Air Transport Association (IATA) said it expects the industry to post a net profit of $4.7 billion this year, with more than 4 billion passengers set to take to the skies. The airline industry is forecasted to record total revenues of $779 billion this year, led primarily by a continued rebound in passenger demand.
While the war between Ukraine and Russia has caused jet fuel prices to spike, making the cost of airline tickets even more expensive, pent-up travel demand globally with the economic rebound is expected to drive the airline industry’s growth. Furthermore, the global aviation market is projected to reach $36.46 billion in 2028, registering a 4.8% CAGR.
Moreover, the ongoing recovery in demand and activity levels across airlines globally has been steady and encouraging, and the global air passenger demand is projected to grow by almost 3% from the pre-pandemic levels by the end of this year.
Let’s discuss the stocks mentioned above in detail:
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 in the international market to and from Canada, as well as through capacity purchase agreements on other regional carriers.
On May 3, 2023, ACDVF and Bell announced a multi-year partnership that will make it even easier to stay connected, both on the ground and in the skies.
The partnership delivers on ACDVF and Bell’s longstanding commitments to elevating the customer experience while focusing on added benefits for newcomers and visitors to Canada, preparing them to connect to Canada’s best network as soon as they land.
On April 13, ACDVF announced the strategic expansion of its international network with the addition of new, non-stop flights from its hub at Vancouver International Airport (YVR) to Dubai.
The new route will operate four times weekly beginning Oct. 28, 2023, onboard Air Canada’s flagship Dreamliner fleet. The carrier’s new Vancouver-Dubai flights will complement Air Canada’s daily service between Toronto and Dubai, broadening its presence in fast-growing international markets.
ACDVF’s forward EV/Sales of 0.78x is 50.1% lower than the industry average of 1.57x. Its forward P/S multiple of 0.36 is 71.7% lower than the industry average of 1.29.
During the fiscal fourth quarter ended December 31, 2022, ACDVF’s operating revenue increased 14.7% year-over-year to CAD4.68 billion ($3.50 billion). Adjusted EBITDA grew 4.1% year-over-year to CAD389 million ($290.73 million), while its adjusted loss per share decreased 62.7% year-over-year to CAD0.61.
ACDVF’s revenue is expected to increase 68.3% year-over-year to $3.38 billion for the fiscal first quarter ended March 2023.
Shares of ACDVF have gained 15% over the past six months to close the last trading session at $15.67.
ACDVF’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth. It is ranked #10 out of 27 stocks in the B-rated Airlines industry.
Beyond what is stated above, we’ve also rated ACDVF for Sentiment, Quality, Value, Stability, and Momentum. Get all MSI ratings here.
Gol Linhas Aéreas Inteligentes S.A. (GOL)
Headquartered in São Paulo, Brazil, GOL provides scheduled and non-scheduled air transportation services for passengers and cargo; and maintenance services for aircrafts and components in Brazil and internationally.
GOL’s forward EV/Sales of 1.32x is 17.8% lower than the industry average of 1.61x. Its forward P/S multiple of 0.16 is 87.6% lower than the industry average of 1.29.
GOL’s net operating revenue rose 52.8% year-over-year to R$4.9 billion ($985.59 million) in the fiscal first quarter that ended March 31, 2023. Net revenue per available seat kilometer increased 37.7% year-over-year to R$43.8. Recurring EBITDA increased 25.2% year-over-year to R$1.2 billion ($241.37 million).
Street expects GOL’s revenue for the fiscal second quarter ending June 2023 to increase 35.1% year-over-year to $848.28 million. Additionally, it has topped consensus revenue estimates in three of the trailing four quarters.
The stock has gained 23% over the past month to close the last trading session at $2.94.
GOL’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
GOL has a B grade for Growth, Quality, and Sentiment. It is ranked #8 in the same industry.
Click here to see the additional POWR Ratings for GOL (Momentum, Stability, and Value).
Copa Holdings, S.A. (CPA)
Based in Panama City, Panama, CPA provides 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.
CPA’s forward EV/Sales of 1.35x is 16.3% lower than the industry average of 1.61x. Its forward P/S multiple of 1.13 is 13% lower than the industry average of 1.29.
CPA pays $3.28 annually as dividends which translates to a yield of 3.43% at the current price. Its 4-year average dividend yield is 1.48%.
CPA’s total operating revenue increased 2.4% quarter-over-quarter to $867.26 million in the first quarter that ended March 31, 2023. Also, its net profit increased 37.7% quarter-over-quarter to $121.5 million, and EPS increased 37.6% quarter-over-quarter to $3.07.
CPA’s revenue is expected to increase 12.12% year-over-year to $777.46 million for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to increase 550.6% year-over-year to $2.08.
CPA gained 37.7% over the past year to close its last trading session at $95.64.
CPA’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
CPA also has an A grade for Quality and Growth. It is ranked #7 in the same industry.
For additional ratings for CPA’s Value, Momentum, Stability, and Sentiment, click here.
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ACDVF shares were trading at $15.57 per share on Thursday morning, down $0.10 (-0.64%). Year-to-date, ACDVF has gained 7.98%, versus a 7.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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