Transportation

Goldman Sachs Lifts Price Targets for 4 Largest US Airlines

Before the COVID-19 pandemic hit the United States in March of last year, the country’s commercial aviation had celebrated a record-breaking year. U.S. carriers were flying 2.5 million passengers and 58,000 tons of cargo every day. At the end of February 2020, those totals had increased by 5%.

Then the bottom fell out and passenger traffic plunged 96% by mid-April, according to industry trade group Airlines for America. Passenger carriers reported pretax losses totaling $46 billion in 2020, and airline industry analysts are forecasting losses of $18 billion for 2021.

In testimony before the aviation subcommittee of the U.S. House Committee on Transportation and Infrastructure, Airlines for America’s president Nicholas Calio also said, “It took 10 years—from April 2010 to March 2020—for U.S. passenger airlines to add 83,000 workers to their payrolls. Sadly, it took just 10 months—from March to November—to shed 93,000 jobs.”

To make it through the pandemic-driven collapse of air travel, airlines have received loans and other assistance to help meet payrolls and keep workers employed. The recently passed rescue legislation included $15 billion for that purpose. Airlines themselves have issued notes and borrowed against their frequent flyer programs in order to maintain liquidity until coronavirus infection levels can be brought under control.

The recent passage of the COVID-19 relief bill includes an additional $15 billion for airlines to use to keep their workers on the payroll. The legislation sent shares higher last Friday, and most of the airline stocks posted new 52-week highs either Friday or Monday.

Here’s a look at how the country’s four largest airlines are positioned for reporting first-quarter results following price target increases announced Tuesday by analysts at Goldman Sachs.

Southwest

Southwest Airlines Co. (NYSE: LUV) is the largest U.S. carrier by market cap ($36.1 billion), more than double its level in May of last year, but still short of its peak of nearly $40 billion in December 2017. Revenue fell 60% year over year in 2020, and the loss per share totaled $6.22.

In the first quarter of last year, Southwest posted a loss per share of $0.15, and it is forecast to post a loss of $1.87 in the first quarter of this year. Estimated quarterly revenue of $1.97 billion is less than half the year-ago total of $4.23 billion.

The story improves for the second quarter, however. Analysts see the loss per share shrinking from $2.67 in the same quarter last year to $0.74 this year. The full-year loss is forecast at $1.97.

The stock traded at around $61, in a 52-week range of $22.47 to $62.76, and the consensus 12-month price target is $58.28. On Tuesday morning, Goldman Sachs boosted its price target on the stock from $47 to $69 and maintained its Buy rating. The highest price target on the shares is $71.

Southwest is not forecast to post a full-year profit until 2022 and currently trades at about 21 times expected 2022 earnings and 14 times expected 2023 earnings.

Delta

The second-largest U.S. airline by market cap is Delta Air Lines Co. (NYSE: DAL), which currently is valued at $31.92 billion. In mid-January of last year, the airline’s market cap reached $39.5 billion. Revenue fell by more than 63% in 2020, and the loss per share for the year was $10.76.

Next month the company is expected to report a loss per share of $2.71, compared with a loss of $0.51 in the first quarter of 2020. Quarterly revenue is forecast at $4.06 billion, a drop of nearly 53% from $8.59 billion a year ago.