Avoid These 5 Downgraded Airline Stocks

Despite witnessing a limited recovery in the first half of the year, the resurgence of COVID-19 cases, followed by stricter travel restrictions, have stymied new bookings and increased cancellations of existing bookings. Although the industry is again…

seeing an uptick in passenger traffic with the easing of travel restrictions in various countries, analysts expect rising fuel costs and pressure on fares to result in bottom-line stress in the fourth quarter and beyond for most airlines.

Although major airline operators should stay afloat owing to their efforts in switching to sustainable jet fuel, some could struggle.

Thus, fundamentally weak airline stocks Delta Air Lines, Inc. (DAL – Get Rating), American Airlines Group Inc. (AAL – Get Rating), JetBlue Airways Corporation (JBLU – Get Rating), Allegiant Travel Company (ALGT – Get Rating), and Hawaiian Holdings, Inc. (HA – Get Rating) have lately been downgraded by analysts, and we think these stocks are best avoided for now.

Delta Air Lines, Inc. (DAL – Get Rating)

DAL in Atlanta, Ga., provides scheduled air transportation and related services for passengers, freight, and mail over a network of routes worldwide. It also provides aircraft maintenance, repair and overhaul services, and vacation packages to third-party consumers, as well as aircraft charters. The company operates with a fleet of approximately 1,100 aircraft. Wolfe Research recently downgraded DAL’s rating from ‘Outperform to ‘Peer Perform.’ The stock has a 1.35 beta.

On August 11, 2021, DAL launched a new Air+Rail program in partnership with Thalys, a French-Belgian high-speed train operator, to provide fast rail connections between Amsterdam and the Belgian cities of Brussels and Antwerp. The program lets customers seamlessly transfer between plane and train at Amsterdam’s Schiphol airport with one-ticket booking. Offering power outlets at each seat and Wi-Fi on every Thalys’ train, the companies expect to provide a better customer experience and convenient train service across European destinations with the program.

For its fiscal second quarter, ended June 30, 2021, DAL’s non-GAAP net loss was $678 million, representing a 75.9% year-over-year decline. Its non-GAAP loss per share decreased 75.8% year-over-year to $1.07. As of June 30, 2021, the company had $10.36 million in cash and cash equivalents, down 8.9% from the prior-year period.

Analysts expect DAL’s EPS to remain negative in the current year. The stock missed consensus EPS estimates in three of the trailing four quarters. DAL’s EPS is expected to decline at a 23.7% rate per annum over the next five years. Over the past six months, the stock has declined 12.3% in price and closed the last trading session at $43.19.

DAL’s weak prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

DAL has a D grade for Stability and Sentiment. In the 31-stock, F-rated Airlines industry, it is ranked #14. To see additional POWR Ratings for DAL’s Value, Quality, Growth, and Momentum, click here.

American Airlines Group Inc. (AAL – Get Rating)

AAL provides scheduled air transportation services for passengers, cargo, and mail service through its hubs and partner gateways worldwide. As of December 31, 2020, the Fort Worth, Tex., company  operated a mainline fleet of 855 aircraft. AAL’s rating has also been downgraded from ‘Neutral’ to ‘Sell’ by Goldman Sachs. The stock has a 1.71 beta.

On September 28, 2021, AAL and IndiGo, an Indian airline, announced a new codeshare agreement, providing an easy option for AAL customers to travel to India. The deal will place AAL’s code on 29 of IndiGo’s domestic routes in India. Expected to begin in October, AAL expects to see advanced bookings this fall.

AAL’s total operating expenses for its fiscal second quarter ended June 30, 2021, increased 71.3% year-over-year to $7.04 billion. As of June 30, 2021, the company had…

 

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