Goldman Sachs restarts coverage of Southwest Airlines shares with a Sell rating and a $28 price target.
Goldman Sachs analyst Catherine O’Brien is picking winners among US carriers amid a bumpy post-COVID-19 environment, as she restarts coverage of nine airlines.
While aircraft delivery delays will persist and possibly exacerbate through 2025, the industry has returned to its usual seasonality. This is causing airlines to undertake capacity management during off-peak periods, she said.
Stock performance has been erratic, with airlines subject to premium and corporate demand and improving competition capacity, as well as “idiosyncratic margin tailwinds,” which are considered as positioned to outperform, she said.
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Alaska Air, Delta, and United are projected to benefit the most from these dynamics, she said.
“More frequently term, we believe that the item categorization has brought about fundamental changes to relative margin efficiency,” O’Brien stated to me. “We anticipate that Delta, SkyWest, and United’s adjusted margins will increase in comparison to. previous years, while profits across the rest of our coverage will remain in line to lower.”
Overall, Goldman Sachs expects a “material” rise in earnings before interest, taxes, depreciation, amortization, restructuring, and rent charges (EBITDAR) over the next three years, with “significant improvement” in JetBlue, Allegiant, and Southwest, she said.
Goldman Sachs returned to covering 9 airlines and presented a comprehensive assessment of the industry’s expectations for the upcoming year. Here’s a look at who won and lost in the business.
The Details: According to Goldman Sachs analyst Catherine O’Brien, the firm expects airlines to have supply limitations until 2025. She predicts mixed stock market results, with airlines benefiting from premium and demand from businesses outperforming the sector.
ALK: With a buy rating and a price target of $70, the firm has returned to covering Alaska Air Group, Inc. ALK. The analyst highlighted the airline’s vulnerability to West Coast business travel demand, which has started to improve strongly.
She also mentioned Alaska Air’s growing interisland profitability and expects upside from efficiencies from the Hawaiian Airlines acquisition.
DAL: Delta Air Lines, Inc. was once again covered by Goldman Sachs. DAL as a Buy, with a $83 price target, representing a 28% increase over the stock’s current levels. The firm stated that Delta’s Buy rating is supported by its growth in loyalty revenue, which is aided in part by its long-term credit card deal with American Express.
O’Brien also discussed the airline’s vulnerability to consumer demand for premium services, as well as competitors abandoning important markets where Delta continues to operate.
UAL: O’Brien said that United Airlines Holdings, Inc. (UAL) would end 2024 with margins virtually back to pre-pandemic levels, the fastest rate of recovery among the firm’s airline coverage. The Goldman Sachs analyst also cited United as one of the best positioned to meet rising premium and corporate consumer demand.
Goldman Sachs restarted coverage of United Airlines with a Buy rating and a $119 price target, representing a 31% increase over the stock’s current price.
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