In this article, we discuss the 11 worst aviation stocks to buy according to analysts. Moreover, we discuss the industry outlook and the technological advancements of airlines.
The aviation industry has been one of the most important segments of the market in the 20th and 21st centuries. The future of aviation is closely tied to the broader landscape of mobility, which is important for economic growth, social connectivity, and access to services like trade, healthcare, and education.
According to the International Air Transport Association (IATA), the airline industry has made a strong recovery from the COVID-19 crisis, with global traffic surpassing pre-pandemic levels by February 2024. Domestic travel rebounded first, which reached pre-Covid levels by spring 2023, while international travel followed more recently.
However, the global network has shifted since 2019. China’s international travel recovered slowly due to the delayed easing of restrictions, economic uncertainties, and geopolitical issues. On the other hand, domestic travel in China hit record highs, driven by internal tourism. Routes between Asia and Europe continue to be affected by the war in Ukraine.
Most regions are expected to exceed 2019 traffic levels in 2024, with global passenger numbers forecasted to grow 10.4% year-over-year.
The report states that Asia Pacific is the fastest-growing region, which is projected to contribute over half of global passenger growth by 2043 and it is led by India and China. Despite risks like geopolitical conflicts and climate policies, improved economic conditions may boost demand.
Air connectivity, a main driver of global economic growth, is set to hit a record in 2024 with over 22,000 unique city pairs, aided by declining ticket fares. Meanwhile, air cargo demand has rebounded, driven by e-commerce and shipping disruptions. The global capacity is expected to increase further, though the cargo load factor will likely decrease as capacity exceeds demand.
Use of AI in the Industry
Like most industries of today, airlines are also implementing AI to improve the efficiency of their operations. According to an August report by CNBC, these companies are using AI for tasks like ground control, customer service, and optimizing flight routes.
American Airlines introduced its AI-powered “smart gating” system at its Dallas-Fort Worth control center. The tool automatically assigns gates to incoming flights, which cut runway taxi time by around 20%, or two minutes per flight, across five airports. The system also helps passengers, baggage, and crews make quicker connections, which improves overall efficiency.
Alaska is using AI to streamline flight paths and optimize aircraft turnaround times at gates. Its tool is described as “Waze for the skies,” and it uses AI to plan faster routes, which saves fuel and reduces delays. Additionally, the system monitors ground operations as it tracks when fuel, catering, and baggage trucks arrive and depart, which allows agents to address delays immediately.
United has implemented generative AI for customer service, especially during flight disruptions. The AI generates detailed, empathetic messages explaining delays, which has increased customer satisfaction by 4% since its rollout on 6,000 flights.
Despite these advancements, the airlines said that AI is not replacing jobs but is improving operational efficiency. AI tools allow airlines to improve areas where humans may struggle to handle complex tasks as efficiently. These things, like reducing flight delays or cutting minutes off turnaround times, aim to improve overall service without completely automating operations.
With that, we look at the 11 Worst Aviation Stocks to Buy According to Analysts.
11 Worst Aviation Stocks to Buy According to Analysts
Our Methodology
For this article, we used stock screeners and ETFs to identify 65 companies above $50 million market cap that have significant operations in the aviation industry. We narrowed our list to 11 companies where less than 50% of the analysts that have covered the stock have Buy-equivalent ratings. In addition, we skipped stocks with an average analyst price target upside above 15%. The stocks are listed in descending order of their average analyst price target upside.
We also added the hedge fund sentiment around each stock which was taken from our database of over 900 elite hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
11 Worst Aviation Stocks to Buy According to Analysts
11. Woodward, Inc. (NASDAQ:WWD)
Average Analyst Price Target Upside as of September 16: 12.79%
Number of Hedge Fund Holders: 41
Woodward, Inc. (NASDAQ:WWD) is a provider of energy control solutions and focuses on the design and manufacturing of control systems and components for several applications. In the aviation sector, the company is known for its advanced control systems used in aircraft engines.
It produces critical components such as fuel pumps, engine controls, actuators, and electronic systems, which play an important role in optimizing the performance and efficiency of aircraft engines.
The company’s aviation products are essential for many types of aircraft. Its control systems are used in planes with different kinds of engines, including turboshaft, turboprop, and reciprocating engines.
Woodward (NASDAQ:WWD) is 11th on our list of worst aviation stocks according to analysts. However, it is important to note that the average analyst price target for the company shows an upside of 12.79%, as of September 16. 7 out of 13 analysts have a Hold rating on the stock.
Among the analysts that have a Hold rating for the company stock, Deutsche Bank changed its rating on the company from Buy to Hold and reduced its price target from $197 to $158 on July 30. The firm believes that the company might face further challenges, which could lead to lower earnings estimates for 2025. The concern is due to uncertainties surrounding its China natural gas truck business, which might affect the company’s future performance.
On the other hand, On September 5, TipRanks reported that Sheila Kahyaoglu from Jefferies gave Woodward (NASDAQ:WWD) a Buy rating and maintained a price target of $190. Her positive view is based on the company’s strong financial performance and operational strengths.
The analyst highlighted the company’s ability to increase prices, with an 8% rise in 2023 and a projected 7% increase in 2024, which is supported by long-term service contracts. its aerospace aftermarket sector is growing significantly, and its industrial segment remains strong.
Kahyaoglu also expects the company to achieve strong margins, potentially exceeding 22% by fiscal 2026, due to increased aerospace production. The commercial aerospace aftermarket is expected to grow at a compound annual rate of 12% through 2031, which is mainly driven by service revenues and new expansions. Moreover, growth in the military sector and strategic management of markets like China support the positive outlook.
In Q2, 41 hedge funds had stakes worth nearly $1.39 billion in Woodward (NASDAQ:WWD). With 4.1 million shares worth $715.038 million, Eagle Capital Management is the company’s most significant shareholder as of Q2.
10. American Airlines Group Inc. (NASDAQ:AAL)
Average Analyst Price Target Upside as of September 16: 9.7%
Number of Hedge Fund Holders: 38
American Airlines Group Inc. (NASDAQ:AAL) is one of the largest airlines in the world and is headquartered in Texas. The airline’s network spans nearly 350 destinations across nearly 50 countries and is supported by an extensive fleet of approximately 1000 aircraft. It operates out of 10 major hubs.
American Airlines (NASDAQ:AAL) has a rich history, beginning with its formation in 1930 from a merger of several smaller airlines. It played a significant role in the evolution of commercial aviation, contributing to the development of the Douglas DC-3 and DC-10 aircraft. The airline’s significant milestones include its 2001 acquisition of Trans World Airlines and its 2013 merger with US Airways, which created the largest airline in the U.S. and solidified its position in the global market.
While the average analyst price target of $11.86 shows a 9.7% upside to American Airlines’ (NASDAQ:AAL) stock as of September 16, the majority of the analysts that have covered the stock maintain a Hold rating on the company and 2 analysts recommend a Sell rating. Only 8 out of 24 analysts recommend a Buy-equivalent rating for the company.
American Airlines (NASDAQ:AAL) is also dealing with a class action lawsuit filed by Levi & Korsinsky on July 18. According to the lawsuit, the company’s executives made excessively positive statements about a new sales and distribution strategy and shareholders purchased the company stock at inflated prices between January 25, 2024, and May 28, 2024.
The lawsuit argues that the statements made by the airline were misleading because they hid the fact that the new strategy wasn’t making as much money as expected. The complaint claims that the real negative effects of the strategy were kept secret from investors.
