5 Undervalued Airline Stocks

09/22/2011 9:00 am EST

Focus: STOCKS

Despite cash-strapped consumers, industry experts and Wall Street analysts believe that these five airline stocks have significant upside potential, yet share prices remain deeply undervalued.

Worldwide demand for air travel remains above average despite widespread economic turmoil and stagnant job growth. The airline industry has even gone so far as to substantially raise forecasts for the year, reports The New York Times.

The findings come from the International Air Transport Association, which also says that negative economic factors are expected to curtail business and holiday travel well into the new year.

Despite these setbacks, the industry’s rebounds will be aided by a renewed flow of air cargo traffic to Japan that was slowed by this year’s natural disasters and increased tourism traffic in Europe fueled by a relatively weaker euro.

The Association reports they "Raised its forecast for combined 2011 profit to $6.9 billion, a big improvement from the $4 billion predicted in June." Yet these rebounds, while significant, will not propel the industry back to pre-crisis levels.

"The new outlooks are a sharp drop from the nearly $16 billion that carriers earned in 2010… In North America, the association predicted airlines would achieve a collective net profit of $1.5 billion this year, down from $4.1 billion in 2010." (From The New York Times)

Indeed, the industry is aware it faces challenges ahead and while it may come out with positive profit margins in 2012, it will be a far cry from significant, profitable growth.

So, how can you identify the most underestimated (and therefore, undervalued) airline stocks?

To help you get started, we collected data on analyst earning projections and identified a list of airline stocks that have seen an increase in their projected profits over the last 30 days.

Even more significantly, most of these stocks have seen their stock price change by less than the increase in projected profits, signaling that a mispricing may have occurred.

Wall Street analysts think there’s significantly more upside to these names, but stock investors don’t seem to have received that memo.

Ryanair Holdings plc (RYAAY) provides passenger airline services in Ireland, the United Kingdom, continental Europe, and Morocco. The earnings per share (EPS) estimate for the company’s current year increased from $2.13 to $2.14 over the last 30 days, an increase of 0.47%. This increase came during a time when the stock price changed by -2.91% (from $25.45 to $24.71 over the last 30 days).

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NEXT: 4 Other Airlines with Unrealized Potential

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Hawaiian Holdings Inc. (HA) engages in the scheduled air transportation of passengers and cargo. The EPS estimate for the company’s current year increased from $0.31 to $0.42 over the last 30 days, an increase of 35.48%. This increase came during a time when the stock price changed by 12.59% (from $3.97 to $4.47 over the last 30 days).

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China Eastern Airlines Corp. Ltd. (CEA) operates in the civil aviation industry. The EPS estimate for the company’s current year increased from $0.39 to $0.40 over the last 30 days, an increase of 2.56%. This increase came during a time when the stock price changed by -14.32% (from $22.63 to $19.39 over the last 30 days).

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TAM S.A. (TAM) provides passenger and cargo air transportation services in Brazil and internationally. The EPS estimate for the company’s current year increased from $0.86 to $1.14 over the last 30 days, an increase of 32.56%. This increase came during a time when the stock price changed by 8.98% (from $18.49 to $20.15 over the last 30 days).

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US Airways Group, Inc. (LCC) provides air transportation for passengers and cargo. The EPS estimate for the company’s current year increased from $0.05 to $0.06 over the last 30 days, an increase of 20.0%. This increase came during a time when the stock price changed by 12.52% (from $5.11 to $5.75 over the last 30 days).

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By the Staff at Kapitall.com

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