Raymond James Places Bet on These 5 Airline Stocks

On Tuesday, December 29, Boeing made history when a Boeing 737 MAX jetliner completed the first commercial flight since all MAXes all around the world were grounded in March 2019. Just after 1 p.m. Eastern, American Airlines Flight 718 out of Miami touched down, safe and sound, at New York's LaGuardia Airport, marking the official return of the 737 MAX to service.

It may also have marked the time investors begin planning for a post-coronavirus revival of air travel.

Against this backdrop, Raymond James analyst Savanthi Syth released a report predicting that the long-awaited recovery of air travel "is coming," and began placing bets on which airlines will be best positioned to profit from it.

Syth reviewed five airline stocks in detail -- Delta Air Lines (DAL), United Airlines (UAL), American Airlines (AAL), Southwest Airlines (LUV), and Air Canada (ACDFE) -- describing how their respective regions of activity, relative strength in domestic versus international air travel, their reliance on revenue from business travel, balance sheet strength, and other factors, make certain airliners more likely winners than others.

So how do these airlines rate?

Well, one airline clearly rates better than any other, and in Syth's view, that airline is Southwest. By adding 12 new airports to its network since the pandemic hit, Southwest, argues the analyst, is best positioned to profit from a revival of domestic leisure and VFR ("visiting friends & relatives") travel in the U.S., which is the segment of air traffic that she believes will recover first.

With only limited international exposure, Syth doesn't mention that aspect of Southwest's business at all, despite predicting that after domestic leisure and VFR, the international leisure and VFR market will be next to recover. She does note, however, that the third major market to recover -- business travel -- is also a strength for Southwest. Having expanded its network even as its competitors were retrenching, Syth believes Southwest is best-positioned to grab additional market share in the business travel segment.

As for the other airlines reviewed, they're kind of a mixed bag, with each showing different strengths and each plagued by different weaknesses. United Airlines appears to be the analyst's (distant) second favorite airline. The analyst sees United as ranking only fourth-out-of-five in domestic leisure/VFR, which could be a drag on the stock as this is the market segment expected to recover first. That being said, Syth sees United as second only to Southwest in the lucrative market for business travel, with network "particularly suited to capture the recovery in business demand."

Syth sees Delta and American Airlines as basically tied for third place, with American having a slight advantage in the leisure/VFR market, but suffering from "a relative disadvantage in capturing the business demand recovery" and actually ranking in last place for business. Delta, in contrast, "is positioned in the middle of the pack" for leisure/VFR, and ranks fourth in business travel.

Rounding out the list, Syth puts Air Canada in last place, "worst positioned among the five large airlines analyzed" for leisure travel because it relies largely on international traffic (specifically, cross-border flights to the U.S.), and only middling in business.

But really, if you want the long and the short of it, you could summarize Syth's report in just five words: "Buy Southwest; forget the rest." The analyst backs his Buy rating with a $54 price target, which implies a 16% upside from current levels. (To watch Syth's track record, click here)

Wall Street is broadly in agreement with this analysis. Over the last couple of months, LUV has received 9 Buys, 3 Holds, and 1 Sell -- all add up to a Moderate Buy consensus rating. With an average price target of $53.09, LUV has a forward growth potential of ~14%. (See LUV stock analysis on TipRanks)

To find good ideas for airline stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.