Major U.S. airlines experienced pent-up travel demand last year following significant losses due to COVID-led travel restrictions. However, staffing issues, higher fuel costs, disruptions caused by weather, and capacity restrictions had an adverse impact on airlines. Using TipRanks’ Stock Comparison Tool, we pit Delta Air Lines (NYSE:DAL), United Airlines (NASDAQ:UAL), and American Airlines (NASDAQ:AAL) against each other to find Wall Street’s favorite airline pick in 2023.
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Delta Air Lines (NYSE:DAL)
Delta Air Lines topped analysts’ Q4 2022 expectations on strong travel demand. Moreover, the carrier repaid over $5 billion in gross debt in the full-year 2022. However, investors were disappointed with Delta’s Q1 2023 earnings guidance.
Nonetheless, the carrier expects revenue growth in the range of 15% to 20%, EPS of $5 to $6, and free cash flow of over $2 billion in 2023. Delta also ensured investors that it is on track to deliver EPS of over $7 and free cash flow of $4 billion in 2024.
IS DAL Stock a Buy?
Despite the weak Q1 2023 guidance, Morgan Stanley analyst Ravi Shanker remains bullish about Delta. The analyst feels that the market might look beyond the subdued start to the year and focus on accelerating earnings momentum through this year.
Shanker stated, “With the December storm and pilot contract now behind them (assuming successful ratification), the coast is clear for DAL to execute and do what it does best… fly a leading airline franchise on the way to earning $7 EPS.” Shanker reaffirmed a Buy rating on Delta with a price target of $65, calling it a top sector pick.
Wall Street’s Strong Buy consensus rating for Delta Air Lines is based on 12 Buys and one Hold. At $50.54, the average DAL stock price target implies 26.7% upside potential. Shares have risen over 21% since the start of this year.
United Airlines (NASDAQ:UAL)
Despite the disruption caused by the winter storm, United Airlines beat Wall Street’s expectations for Q4 2022 and issued an upbeat outlook for Q1 2023. It ended 2022 with liquidity of $18 billion and lowered its adjusted net debt by $3.3 billion.
United is confident about meeting its 2023 target of adjusted net debt to EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) ratio of less than three times.
Furthermore, it guided for adjusted EPS in the range of $10 to $12 for 2023, significantly higher than the Street’s estimate of $6.84. United expects to generate positive free cash flow this year despite an elevated adjusted capital expenditure estimate of about $8.5 billion.
What is the Target Price for UAL?
Bernstein analyst David Vernon highlighted that United Airlines delivered strong results even when measured against his “bullish” estimates. “United is leaning into international growth in 2023, and leveraging investments made during pandemic to realize a recovery in earnings power that is way ahead of market expectations,” said Vernon.
Vernon believes that it could be a “good idea” to invest in UAL given the “quicker than expected recovery in earnings power at this valuation.”
UAL scores a Moderate Buy consensus rating based on seven Buys, four Holds, and one Sell. The average UAL stock price target of $55.55 suggests 6.2% upside potential. Shares have jumped nearly 39% year-to-date.
American Airlines (NASDAQ:AAL)
Robust travel demand and higher fares helped American Airlines report better-than-expected Q4 2022 earnings, while revenue was essentially in line with expectations. The carrier expects a solid demand environment to continue this year. It also projects further improvement in demand for long-haul international travel.
American Airlines is focused on improving its financial position. As of 2022-end, American reduced its total debt by over $8 billion from peak levels in Q2 2021. It is more than halfway to its goal of bringing down total debt by $15 billion by 2025-end.
Is AAL a Buy, Sell, or Hold?
Following the Q4 print, Susquehanna analyst Christopher Stathoulopoulos noted that the 2023 free cash flow outlook of about $3 billion came ahead of his expectations. Nonetheless, the analyst feels that the guidance indicates comparatively lower spending on aircraft, given delays in MAX deliveries and the direct lease of several widebodies.
The analyst raised his estimates for American Airlines but feels that the risk-reward profile is better for Delta Air Lines. Stathoulopoulos reiterated a Hold rating for American Airlines with a price target of $15.
Wall Street is sidelined on American Airlines, with a Hold consensus rating based on one Buy, seven Holds, and two Sells. The average AAL stock price target of $16.89 implies that the shares could be range bound in the near future. Shares have advanced 34% so far in 2023.
Conclusion
Shares of Delta Air Lines, United Airlines, and American Airlines have rallied so far this year. Nevertheless, analysts are more bullish about Delta and see higher upside potential in the stock compared to United and American. Delta expects to enhance its revenue, earnings, and free cash flow this year.
Aside from analysts, hedge funds are also bullish about Delta Air Lines and increased their holdings by 2 million shares last quarter. As per TipRanks’ Hedge Funds Trading Activity Tool, the confidence signal for Delta is Very Positive.
