Written by Norman Isaac Mwambazi

Morgan Stanley analyst gives three reasons why airline stocks are in “Buy” region

One of the worst-hit sectors by the COVID-19 pandemic was the transport sector. Restrictions like stay at home, work from …

One of the worst-hit sectors by the COVID-19 pandemic was the transport sector. Restrictions like stay at home, work from home, lockdown, and countries closing their borders to avoid importing more COVID-19 infections made airlines redundant for almost a year. Airlines grounded their fleet due to a lack of passengers, while some laid off hundreds of employees and in doing so, their share prices plummeted.

The good news is that the peak of the pandemic seems to have passed, and the future is now looking better for airline companies, so much so that analysts think the sector is ripe for buying.

According to Ravi Shanker, an analyst at Investment Banking Company Morgan Stanley (ticker: MS), the time to buy airline stocks is now, and he gave three reasons to back up his suggestion.

Vaccination

As you are already aware, the entire world has embarked on a mass vaccination campaign against COVID-19, and most countries are now opening their doors to vaccinated tourists. The U.S. has already vaccinated over 187 million people which represents more than 56% of the country’s population, and over 2.72 billion people have been fully vaccinated across Europe. This huge number has seen countries lift international travel restrictions in most countries and in the U.S., President Joe Biden said fully vaccinated travellers will be allowed to enter the U.S. starting next month.

The COVID-19 peak has passed

Although the delta variant caused havoc in the previous months, health experts suggest that the peak of the pandemic has passed and that more people will be able to travel the globe going forward. Shanker believes that with the toughest bit of the pandemic behind us, airlines will have a smooth runway to fly to new heights in 2022 and 2023. This bright future for the airline sector is attractive for those that would like to fly along.

Better analysts’ days

As the year comes to an end, Shanker believes that the analyst days that airline companies will hold in December will provide investors and analysts positive insight going into the 2022 and 2023 fiscal years. Shanker believes this going by the current rally of airline stocks as more people start travelling.

According to data from Yahoo Finance, shares of SouthWest Airlines (ticker: LUV), United Airlines (ticker: UAL), Delta Air Lines, Inc. (ticker: DAL), and American Airlines Group (ticker: AAL) have all grown more than 10% in the past month. Other airlines like JetBlue Airways (ticker: JBLU) and Spirit Airlines, Inc. (ticker: SAVE) have gained 9.3% and 9.8% respectively in the same period. The NYSE Arca Airline Index, which measures the performance of highly capitalized and liquid international passenger airline companies, has tacked on 8% in the last month.

However, not every analyst is thinking along the same lines as Shanker, even with this rally in the airline sector in the past month. In a note to clients, Andrew Didora, a Senior Equity Research Analyst at Bank of America Corp (ticker: BAC) advised investors to take a more disciplined approach while navigating the airline sector.

Didora said that the airline sector is currently facing cost pressures that affect BAC’s Earnings Per Share (EPS) expectations for the sector for the second half of the 2021 fiscal year (2H21), so they are cautious on corporate carriers. However, Didora added that BAC analysts are in favour of SouthWest Airlines and Alaska Air due to their healthy balance sheets.