Every time here is a huge geopolitical headline issue, especially one as horrific as the deadly attacks in Paris, the transportation sector gets hit, and usually airlines are among the hardest hit. Toss is the downing of a Russian airlines flight from the Middle East, which now appears to also be the work of terrorists, and the sector really takes it on the chin.
However, the reality is, despite all that, the airline industry is having one of the best years ever. With jet fuel pricing still at record lows, the top and bottom lines for the leading companies should be outstanding for the fourth quarter and 2016. We screened the Merrill Lynch research data base for airline stocks rated Buy and found three that could provide investors outstanding upside potential.
Delta Air Lines
This company consistently has ranked high with Wall Street. Delta Air Lines Inc. (NYSE: DAL) and the regional Delta Connection carriers offer service to 334 destinations in 64 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft. Wall Street analysts have long lauded that Delta has the most extensive hedging policy among the airlines and owns and operates a refinery in addition to a sizable hedging book. Trading at a low 8.8 times 2016 estimated earnings, the stock is right in the metrics that look so solid.
China Eastern Airlines and Delta signed an agreement earlier this year to expand their partnership and better connect Delta’s global network with China Eastern, one of the leading airlines in China. The agreement will include a $450 million investment by Delta to acquire a 3.55% stake in China Eastern.
Delta investors are paid a 1.23% dividend. The Merrill Lynch price target for the stock is $60. The Thomson/First Call consensus price objective is $61.43. The stock closed most recently at $47.75.