United, Delta and Alaska Air are the buys in 'mixed' air-travel recovery, says Goldman analyst

MW United, Delta and Alaska Air are the buys in 'mixed' air-travel recovery, says Goldman analyst

By Steve Gelsi

Goldman Sachs analyst Catherine O'Brien resumes coverage of airlines as carriers face choppy post-COVID world

Goldman Sachs analyst Catherine O'Brien is picking winners among U.S. carriers in the face of a choppy post-COVID-19 world for the sector, as she resumes coverage of nine airlines.

O'Brien on Friday assigned "buy" ratings to United Airlines Holdings Inc. $(UAL)$, Delta Airlines $(DAL)$ and Alaska Air $(ALK)$.

American Airlines Group Inc. $(AAL)$, Skywest Inc. $(SKYW)$ and Allegiant Travel Co. $(ALGT)$ were rated neutral.

JetBlue Airways Corp. $(JBLU)$ and Southwest Airlines Co. $(LUV)$ drew sell ratings as the "least recovered" names in the business.

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While aircraft-delivery delays will continue and possibly worsen into 2025, the business has returned to its traditional seasonality. This is causing airlines to practice capacity discipline in off-peak periods, she said.

Stock performance has been volatile, with airlines exposed to premium and corporate demand and improving competitive capacity, along with "idiosyncratic margin tailwinds," seen as in positioned to outperform, she said.

The names expected to benefit the most from these dynamics are Alaska Air, Delta and United, she said.

"Longer term, we believe that product segmentation is creating structural changes to relative margin performance," O'Brien said. "We expect normalized margins for Delta, SkyWest, and United to improve vs. historical performance, while margins across the rest of our coverage will settle in-line to lower."

All told, Goldman Sachs is projecting "material" growth in earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) growth over the next three years, including "significant improvement" in JetBlue, Allegiant and Southwest, she said.

-Steve Gelsi

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November 15, 2024 11:29 ET (16:29 GMT)

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