Airline stocks: Time to invest | 3 reasons to think about

Oct. 27, 2021

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The COVID-19 pandemic continues to wreak havoc on the airline space, but the time to buy is now, argues Morgan Stanley analyst Ravi Shanker. 

Shanker cites three reasons for his bullish call. 

First, the sector could see positive news flow into year-end as vaccinations continue for COVID-19 and international travel restrictions are lifted. To that end, the Biden administration said recently it would lift restrictions for fully vaccinated travelers to enter the U.S. starting in November.

Secondarily, Shanker believes the bad news for the sector on the COVID front peaked in the third quarter. That suggests an improving runway for airline sector margins, according to Shanker's research. 

And lastly, Shanker thinks December analyst days for the airline sector will be "very bullish" with respect to 2022 and 2023 financial targets. 

To be sure, airline stocks have begun to lift off over the last few weeks as investors begin to price in brighter skies in 2022. Analysts such as Shanker point to news of Merck's potential new COVID-19 pill as being particularly friendly to airline stocks of late. 

Shares of SouthWest Airlines, Delta Air Lines , American Airlines and United Airlines have all gained more than 10% in the past month, per Yahoo Finance Plus data. Spirit Airlines and JetBlue Airways have tacked on 9.8% and 9.3% during that same stretch. 

Meanwhile, The NYSE Arca Airline Index is up 8% in the the last month.

Not every analyst is on board with Shanker's upbeat view on the sector, however. Some such as BofA's Andrew Didora advise a more disciplined approach to playing the airline recovery.

"While near term demand and cost pressures lower our 2H21E EPS for the industry, in our view, the overall trajectory of the recovery remains unchanged. We remain more cautious on corporate and continue to favor Southwest/Alaska Air given their strong balance sheets, and leisure oriented carriers such as Allegiant given little competition on its routes," said Didora in a note to clients.