Investors with a long memory know that the airlines can be a risky place to put capital. The airline graveyard is littered with iconic names like Pan-Am, TWA, Eastern and Northwest, just to name a few. Everything from stubborn unions to the cost of jet fuel, to bad management and overexpansion, can be cited for many of the failures. Consolidation has taken hold in the airline industry and a slew of new fees and charges has helped the major remaining airlines get back to profitability.
With the summer travel season getting its official kick off last weekend for the Memorial Day holiday, the airline analyst team at Deutsche Bank A.G. (NYSE: DB) has released a new report highlighting passenger revenue per available seat mile. The numbers for the major carriers look solid for May, and that could bode very well for this summer.
Deutsche Bank has six solid airline stocks to buy now.
Alaska Air Group Inc. (NYSE: ALK) has been on a tremendous run since last fall. The company reported an 8.5% increase in its revenue passenger miles in April. The Deutsche Bank target for this top regional carrier is $70. The Thomson/First Call estimate is right in line at $70.
Allegiant Travel Co. (NASDAQ: ALGT) is a top stock to buy and has been profitable for 41 consecutive quarters. The company provides scheduled air transportation on limited frequency nonstop flights between small city markets and leisure destinations. Deutsche Bank has a $110 target, but the consensus price objective is $105.
Delta Air Lines Inc. (NYSE: DAL) just completed an expensive refurbishment of the old Pan-Am terminal at JFK in New York to help lure the high-end traveler. Deutsche Bank has a $20 target and the consensus is higher at $23. Investors receive a 1.30% dividend.
Southwest Airlines Co. (NYSE: LUV) stock has seen a consistent downtrend extending back to the early 2000s. The stock has made an explosive move this year that has taken it to the top end of its multiyear downtrend. Deutsche Bank has a $17 price target for this one-time market favorite. The consensus target is at $15.50. Shareholders are paid a 1.10% dividend.
United Continental Holdings Inc. (NYSE: UAL) has struggled since the merger and has had consistently low rating from customers. Hedge fund guru David Tepper, the founder of the high-return Appaloosa Management, likes the stock, which makes up almost 6% of his portfolio. Deutsche Bank has a $40 price target. The consensus is at $35.
US Airways Group Inc. (NYSE: LCC) is in the process of merging with the iconic American Airlines, which is still in bankruptcy. Timely acquisitions have built the company into an industry leader. The Deutsche Bank price target and the consensus target are both at $21. US Airways trades at an extremely low 4.5 times earnings.
Commodity costs are always the number one concern for the airlines. Investors have to be wary of instability or geopolitical issues that can either raise costs or keep customers from traveling. With fewer players in the game, the airlines have been able to avoid fare wars and tack on those pesky fees we all cannot stand. For investors, that adds up to a winning combination for the top stocks.
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