2 Airline Stocks to Keep an Eye on

SkyWest (SKYW) and Alaska Air Group (ALK) are American airliners with a strong regional focus.

I am bullish on both stocks. (See Analysts’ Top Stocks on TipRanks)

Market Outlook

The air travel industry is picking up steam again with airline TSA throughputs in the 80%-90% zone. An inflection point in the bear market could be the fact that governments seem to be opting for vaccine mandates rather than hard-lockdown policies, which means air travel could grow exponentially in 2022.

One positive the airliners can take from the pandemic has been the improvement in AI. Companies have been forced to improve their big data analysis during the period, and the AI procedures that have been adopted could have a long-lasting impact on the efficiency of the industry.

I believe we’re in for a period of robust growth in the air travel sector, with companies benefiting from both systemic and idiosyncratic factors.

SkyWest

SkyWest’s fleet modernization is an immense value add. The firm recently agreed on a deal with Delta Airlines (DAL) to purchase and operate sixteen E175s. Furthermore, the company’s illustrating a robust recovery with a 66% year-over-year increase in passengers carried; I expect this trend to continue through Q4 and 2022 due to the mentioned market reasons.

The stock is significantly undervalued relative to the rest of the airliners. SkyWest’s price-sales trades at a 49.1% sector discount, while its price-to-cash flow and price-to-book ratios also trade at discounts of 82.8% and 67.9%, respectively.

SkyWest could be a momentum swing trade opportunity to investors, however, after less subdued Omicron news than expected, SkyWest stock has broken through the oversold threshold and is now trading above its 10-day moving average as well.

Analysts are bullish on the stock, with Raymond James’ (RJF) Savanthi Syth being the latest analyst to provide coverage on SkyWest stock. Synth thinks the stock price will reach the $63 handle, which suggests 52.9% in upside potential.

Alaska Air Group

Alaska Air made a good move at a perfect time when it joined the Oneworld alliance in March. Since joining the group, Alaska Air has broadened its network by 39%, adding 188 new routes.

If we take a look at things from a growth vantage point, the company has recovered superbly in 2021 by experiencing a consolidated load factor increase to 80.3% in its third quarter, sending bull signals across the market.

The stock’s price-to-sales, price-to-cash flow, and price-to-book ratios are trading at sector discounts of 21.4%, 26%, and 37.2%, respectively. It’s thus objective to conclude that we’re looking at an undervalued stock here.

Additionally, a momentum pattern is forming with the stock trading above its 10-day moving average, having broken through its RSI lower bound at the start of December.

Wall Street is bullish on the stock with an average Alaska Air price target of $80.56, presenting an opportunity of 58.3% in value upside. All of the latest nine analysts to have provided coverage on the stock have assigned buy ratings, with Duane Pfennigwerth of Evercore ISI (EVR) being the latest with a price target of $80.

Concluding Thoughts

Both of these stocks are prime investment opportunities if we consider the industry’s recovery. The respective stocks are undervalued relative to the sector average, and momentum patterns have formed over the past 10 days.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.