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.
9. Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC)
Average Analyst Price Target Upside as of September 16: 2%
Number of Hedge Fund Holders: 7
Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC), also known as GAP Airports, is an airport operator based in Guadalajara, Mexico, with a significant presence in the Western states of Mexico and Jamaica. The company operates, maintains, and develops 14 airports across the Pacific and Central regions of Mexico and the Caribbean.
GAP Airports (NYSE:PAC) generates revenue from various sources, including fees charged to airlines, passengers, and other users of its facilities, as well as rental income from commercial activities like leasing space to restaurants and retailers.
The airports under the company’s management include key locations such as Guadalajara, Tijuana, Puerto Vallarta, Los Cabos, and several others in Mexico, as well as Sangster International Airport and Norman Manley International Airport in Jamaica. It serves a diverse range of customers, including airlines, cargo companies, commercial brands, and travelers.
GAP Airports (NYSE:PAC) has been covered by 17 analysts with less than 50% of them maintaining a Buy-equivalent rating. The average price target of $181 shows an upside of 2% to the company’s stock, as of September 16.
On September 5, The Fly reported that JPMorgan analyst Guilherme Mendes downgraded the company to Underweight from Neutral, despite raising the price target to MXN 365 from MXN 325. The analyst explained that this decision was based on limited potential for further stock gains, even after considering the new master development program. Mendes also noted that the stock carries a higher valuation compared to its peers, trading at a 20% premium, which contributed to the downgrade.
On September 7, Grupo Santander revised its rating for GAP Airports (NYSE:PAC) to Neutral from Outperform with a price target of $81. The change reflects the view that the positive outlook for the company has already been factored into its stock price. The analyst believes that the stock’s current valuation presents a balanced risk-reward scenario for investors.
8. RTX Corporation (NYSE:RTX)
Average Analyst Price Target Upside as of September 16: 1.51%
Number of Hedge Fund Holders: 54
RTX Corporation (NYSE:RTX), formerly known as Raytheon Technologies Corporation, is a prominent name in the aerospace and defense sectors and is headquartered in Virginia. It is one of the world’s leading aerospace manufacturers and defense contractors, known for its extensive portfolio that includes advanced aircraft engines, avionics, and aerostructures. The company’s aviation segment has two subsidiaries, Pratt & Whitney and Collins Aerospace.
Pratt & Whitney is known for its aircraft engines and gas turbines, which power a diverse range of commercial and military aircraft. Its innovative approach has made it a major player in both the civilian and defense aviation markets, as it offers engines that are essential to the latest advancements in air travel.
Collins Aerospace focuses on developing and manufacturing aerospace systems that improve the performance, safety, and efficiency of various aircraft. The subsidiary is important in supplying advanced avionics, air traffic management systems, and other important technologies that support both military and commercial aviation. Collins Aerospace also plays a significant role in space exploration, which contributes to international space programs with its high-tech solutions.
RTX (NYSE:RTX) stock was held by 54 hedge funds in the second quarter, at a combined value of $2.8 billion. Fisher Asset Management is the company’s largest shareholder with 17.619 million shares worth nearly $1.77 billion, as of June 30.
While several analysts are bullish on RTX’s (NYSE:RTX) stock, many are still a little pessimistic. Among 25 analysts, 17 maintain a Hold or below rating for the company. The average price target of $121 represents merely a 1.51% upside to the company’s stock, as of September 16.
7. JetBlue Airways Corporation (NASDAQ:JBLU)
Average Analyst Price Target Upside as of September 16: -0.69%
Number of Hedge Fund Holders: 19
JetBlue Airways Corporation (NASDAQ:JBLU) is a prominent U.S.-based airline headquartered in Long Island City, Queens, New York. It was founded in 1998 and has since grown into a major player in the aviation industry. The airline operates over 1,000 daily flights and services over 100 destinations across the Americas and Europe.
The company differentiates itself from competitors through a focus on providing high-quality service and amenities, such as in-flight entertainment and comfortable seating, while maintaining a low-cost travel model. The airline is also investing in innovative technologies and sustainable practices, including ventures in hydrogen-powered flight and carbon capture.
JetBlue’s (NASDAQ:JBLU) shares were owned by 19 hedge funds in the second quarter and their holdings were valued at $156.894 million. With 17.727 million shares worth $107.957 million, Icahn Capital LP is the company’s top shareholder as of Q2.
Despite JetBlue (NASDAQ:JBLU) being a well-known name in the industry, the company is currently one of the worst stocks according to analysts. Out of 14 analysts, 9 keep a Hold rating for the stock and 3 recommend a Sell rating for the stock. The average price target of $5.75 is 0.69% below the company’s stock price on September 16.
On September 6, TipRanks reported that Thomas Fitzgerald from TD Cowen maintained a Hold rating on the company with a target price of $6.00. The analyst cited a mix of positive and negative factors for the company.
On the positive side, JetBlue (NASDAQ:JBLU) has seen stronger-than-expected bookings, especially in Latin America, and has made progress in revenue initiatives. Operational performance has also improved, with better on-time reliability and effective control of non-fuel costs, aided by lower jet fuel prices.
On the downside, Fitzgerald noted that the company’s updated guidance indicates higher interest expenses for the third quarter and the full year of 2024, which may continue into the fourth quarter. Additionally, the transition of Payroll Support Program loans to variable interest rates in the coming years could further impact financial stability.
6. Northrop Grumman Corporation (NYSE:NOC)
Average Analyst Price Target Upside as of September 16: -1.20%
Number of Hedge Fund Holders: 49
Northrop Grumman Corporation (NYSE:NOC) is a significant player in the aerospace and defense sectors, with a deep-rooted history in aviation. The company is renowned for designing and producing a range of advanced aircraft for the U.S. military and international clients. One of its most iconic contributions to aviation is the B-2 Spirit, a stealth bomber that remains the world’s only known stealth aircraft capable of carrying nuclear and conventional weapons.
The company also plays a noteworthy role in unmanned aerial systems by developing platforms such as the RQ-4 Global Hawk, a high-altitude, long-endurance surveillance aircraft used by the U.S. Air Force.
Its aviation segment, Aeronautics Systems, supports a range of other aircraft such as the E-2 Hawkeye, a carrier-based early warning aircraft used by the U.S. Navy, and the T-38 Talon, a supersonic trainer for fighter pilots. Northrop Grumman’s (NYSE:NOC) technological advancement in aircraft design, stealth technology, and unmanned systems solidifies its position as a major innovator in modern aviation.
While the company is a major player in the aviation industry, analysts are currently a little bearish on it. 27 analysts have covered it and 14 of them keep a Hold rating on it, 1 analyst has an Underweight rating and 2 maintain a Sell rating on the company stock. The average analyst price target for the company is $515, which is 1.20% below its stock price on September 16.
On August 27, Northrop Grumman’s (NYSE:NOC) stock was downgraded by Alembic Global from Overweight to Neutral with a $560 price target.
Despite this pessimism shown by analysts, it is a fundamentally strong company and was awarded a $197.5 million U.S. Navy contract earlier in September to produce 56,000 FMU-139D/B Bomb Tactical Electronic Fuze systems.
The contract also includes additional components such as 500 fuze accessory kits, training fuze systems, bomb initiators, power cables, and closure rings. The products will support the Navy, Air Force, and Foreign Military Sales as part of the Joint Direct Attack Mission weapons program. The program is expected to be completed by 2029.
Moreover, in July, the company received a $1.5 billion contract to supply the US Navy and Japan with nine E-2D Advanced Hawkeye aircraft, with four designated for the US Navy and five for Japan. The contract also includes support services for both nations and its completion is expected by March 2029.
5. Lockheed Martin Corporation (NYSE:LMT)
Average Analyst Price Target Upside as of September 16: -2.26%
Number of Hedge Fund Holders: 56
Lockheed Martin Corporation (NYSE:LMT) operates as a global leader in security and aerospace, specializing in the development and integration of advanced technology systems and services. The company operates through four main segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
The segments include a wide range of products and services, including combat and air mobility aircraft, unmanned air vehicles, air and missile defense systems, tactical missiles, helicopters, satellites, and space transportation systems.
The company’s notable offerings include the F-35 and F-22 fighter jets, which represent some of the most advanced aircraft in the U.S. military’s arsenal. The company’s Sikorsky unit also plays an important role in providing both military and commercial helicopters. According to Bloomberg Government, Lockheed Martin (NYSE:LMT) holds the position of the largest defense contractor in the U.S., with $46 billion in contract obligations.
However, the company has encountered several challenges recently. The company, like many other defense contractors, has faced supply chain disruptions and increased raw materials costs. Profit margins have been under pressure, and there was a temporary halt in the delivery of F-35 jets due to issues with the aircraft’s latest software. The pause lasted nearly a year and was only resolved through a compromise that involved accepting a downgraded version of the software rather than waiting for a fully tested version.
Out of the 25 analysts that have covered the stock, 11 keep Hold ratings, 1 has an Underweight rating and 1 maintains a Sell rating on it. As of September 16, the average price target of $560.00 implies a downside of 2.26% to the stock’s current price.
Despite these hurdles, Lockheed Martin’s (NYSE:LMT) prospects have shown improvement. The company recently reported strong results for the second quarter, and deliveries of the F-35 have resumed, which shows a positive turn in operations.
Additionally, it announced plans to acquire Terran Orbital in a deal valued at $450 million, which is lower than the initial $600 million offer. The acquisition is expected to significantly improve the company’s supply chain and improve its access to satellite technology, which is crucial for fulfilling Pentagon contracts.
The company has raised its 2024 revenue forecast. The company now forecasts revenues between $70.5 billion and $71.5 billion, up from the previous estimate of $68.5 billion to $70 billion. The upward revision also includes an improved EPS outlook, now projected to be between $26.10 and $26.60, compared to the earlier range of $25.65 to $26.35.
In the second quarter, 56 hedge funds had investments in Lockheed Martin (NYSE:LMT), with positions worth $2.056 billion. Two Sigma Advisors is the biggest shareholder in the company as of Q2. In the quarter, the firm increased its stake by 7% to 855,600 shares worth $399.65 million.
4. Frontier Group Holdings, Inc. (NASDAQ:ULCC)
Average Analyst Price Target Upside as of September 16: -8.47%
Number of Hedge Fund Holders: 16
Frontier Group Holdings, Inc. (NASDAQ:ULCC) is a holding company that offers passenger air transportation services through its subsidiaries. Frontier Airlines operates a fleet of over 100 A320 family aircraft. As per the company, it maintains the largest A320neo fleet in the Americas and provides service to approximately 120 destinations across the United States, the Caribbean, Mexico, and Central America.
For the second quarter, the airline reported GAAP EPS of $0.14, which surpassed analyst estimates by $0.04, but this figure was down from the $0.31 EPS recorded in the same period last year.
The company achieved revenue of $973 million, which was slightly higher year-over-year but fell short of estimates by $57 million. Net income for the quarter was $31 million, which was significantly down from $71 million in the previous year’s second quarter.
It ranks 4th on our list of the worst aviation stocks to buy according to analysts. Out of ratings by 12 analysts, the stock was given 9 Hold ratings and 2 Sell ratings. As of September 16, the average price target of $4.00 is 8.47% less than the present levels.
A key challenge for Frontier Group (NASDAQ:ULCC) has been the rise in operational costs. Total expenses for the quarter increased to $948 million from $888 million a year earlier. Despite efforts to cut costs, including a 6% reduction in cost per available seat mile (CASM), the airline still faces financial pressure. The increase in expenses is largely due to higher fuel and labor costs, alongside a competitive market that impacts pricing.
CEO Barry Biffle noted that while consumer travel demand remains strong during peak periods, the shifts in post-pandemic travel patterns have led the airline to focus its operations more on these peak times. With new revenue initiatives maturing and the airline’s cost advantages, Biffle anticipates that the airline will see margin improvements and become a leading low-cost carrier by 2025.
Despite its previous fears, Frontier Group (NASDAQ:ULCC) has updated its guidance for the third quarter, expecting a pre-tax margin ranging from flat to negative 2%. This is an improvement from the previous forecast of negative 3% to negative 6%. According to the airline, the better-than-expected revenue performance has contributed to this revised outlook.
Additionally, the airline plans to moderate its capacity growth to 4% to 5% year-over-year, down from earlier projections of 4% to 6%. The reduced growth rate is intended to help manage pricing pressures by limiting the number of seats that need to be filled.
3. Spirit Airlines, Inc. (NYSE:SAVE)
Average Analyst Price Target Upside as of September 16: -10%
Number of Hedge Fund Holders: 15
One of the worst aviation stocks according to analysts, Spirit Airlines, Inc. (NYSE:SAVE) operates as a low-cost carrier, providing airline services to over 90 destinations across 15 countries in the United States, Latin America, and the Caribbean. The airline also offers hotel and car rental services, adding value to its travel packages.
The stock has 4 Hold ratings and 8 Sell ratings by analysts. The average price target of $2.25 is 10% below the current levels, as of September 16.
The company faced a significant setback in January when its proposed merger with JetBlue was blocked by regulators. The merger was expected to improve its position in the market by creating a larger discount airline.
However, concerns that such a merger would reduce competition and increase ticket prices led to the court’s decision, which resulted in a substantial drop in its stock price.
The company’s financial performance has been under pressure for a while now. In the second quarter, Spirit Airlines (NYSE:SAVE) reported a non-GAAP EPS of -$1.44, which was worse than analysts’ expectations of -$1.36 per share. Revenue for the quarter was $1.28 billion, marking a 10.5% decline compared to the previous year. The downturn is a reflection of broader challenges in the airline industry, including increased competition and an oversupply of seats in the domestic market.
The airline has also been dealing with operational issues, especially with its Pratt & Whitney engines. The problems have led to a significant number of aircraft being grounded for maintenance and inspections.
Management expects up to 70 aircraft to be out of service by the end of 2025 due to these engine issues, compared to an average of about 20 grounded planes this year. The situation has added to the company’s difficulties, which has impacted its ability to manage capacity and maintain service levels.
In response to these challenges, the airline is taking aggressive cost-cutting measures. It has announced plans to furlough approximately 240 pilots and suspend all aircraft deliveries from Airbus.
Additionally, it is downgrading around 100 captains, offering voluntary unpaid leaves to flight attendants, and halting the recruitment and training of new pilots and flight attendants. The measures are aimed at conserving cash amid ongoing financial strain.
Despite the setbacks, Spirit Airlines (NYSE:SAVE) remains focused on adapting to market conditions. However, the forecast for the third quarter suggests that the airline may experience a steeper loss, with a negative adjusted operating margin projected between 26% and 29%. It shows ongoing competitive pressures and the oversupply of seats, which continue to challenge the airline’s profitability.
2. Mercury Systems, Inc. (NASDAQ:MRCY)
Average Analyst Price Target Upside as of September 16: -11.95%
Number of Hedge Fund Holders: 19
Mercury Systems, Inc. (NASDAQ:MRCY) is a technology company specializing in the development and provision of advanced components and subsystems for defense and aerospace applications. Serving a wide range of clients, including defense prime contractors, the U.S. government, and commercial aerospace companies, it operates across the U.S., Europe, and the Asia Pacific.
The company’s products are integral to around 300 programs with 25 major defense and aviation customers. Out of 9 analysts’ coverage, Mercury Systems (NASDAQ:MRCY) has 4 Hold ratings and 2 Sell ratings. As of September 16, the average price target of $33.00 has a downside of 11.95% to the stock’s current price.
Mercury Systems (NASDAQ:MRCY) was part of 19 hedge funds’ portfolios in the second quarter with a total stake value of $341.752 million. JANA Partners is the most prominent shareholder in the company and has a position worth $186.9 million, as of June 30.
In the fourth quarter of fiscal 2024, the company reported revenue of $248.6 million, a decline from the $253 million recorded in the same quarter of the previous year. The company’s GAAP net loss for the quarter was $10.8 million, or $0.19 per share, compared to a net loss of $8.2 million, or $0.15 per share, in the fourth quarter of fiscal 2023.
For the full fiscal year 2024, revenues totaled $835.3 million, a decrease from $973.9 million in fiscal 2023. Adjusted EBITDA also dropped significantly to $9.4 million for the year, compared to $132.3 million the previous year.
Consequently, on September 5, JPMorgan analyst Seth Seifman raised the price target on the stock to $36 from $26 but maintained a Neutral rating.
However, Mercury Systems (NASDAQ:MRCY) is taking steps to improve its financial situation. The company secured a $13.2 million contract with the U.S. Navy in July 2024. The agreement involves developing a next-generation RF System-in-Package (SiP) designed to enhance sensor processing technologies. The new system will accelerate the development of radar and electronic warfare capabilities, which could significantly benefit the company’s future prospects.
1. Southwest Airlines Co. (NYSE:LUV)
Average Analyst Price Target Upside as of September 16: -12.40%
Number of Hedge Fund Holders: 23
Southwest Airlines Co. (NYSE:LUV) is a major passenger airline operating scheduled flights across the United States and several international destinations. With a fleet of over 800 Boeing 737 aircraft, the airline serves nearly 120 destinations domestically and 10 international countries, including Mexico, Costa Rica, Belize, Jamaica, and others.
The airline’s financial performance has been pressured by delays in aircraft deliveries from Boeing, which have worsened cost issues. The ongoing industry-wide overcapacity in the domestic market has led to pricing pressures and lower airfares. The company is in discussions with Boeing regarding compensation for these delays, which may come in the form of price reductions.
It tops our list of the worst aviation stocks to buy according to analysts. Out of 21 analysts, 12 have given the stock a Hold rating, 2 keep an Underweight rating and 4 have a Sell rating on it. The average price target of $25.00 implies a downside of 12.40% from the present levels, as of September 16.
Despite the challenges, in the second quarter, the company achieved a new revenue record of $7.35 billion, which is nearly a 5% increase from the same period in 2023. The growth was driven by a strong demand for air travel. However, despite this revenue boost, the company’s adjusted net income dropped by 51% to $370 million, or $0.58 per share.
The decline in earnings was partly due to a 3.8% decrease in unit revenue compared to the second quarter of 2023. The drop was influenced by a greater increase in domestic capacity relative to the demand, leading to revenue management issues. The airline also faced challenges from selling too many seats too early for the busy summer travel season, which negatively impacted revenue.
Southwest Airlines (NYSE:LUV) has projected capital expenditures of around $2.5 billion for 2024, including about $1 billion for aircraft purchases. The company expects to take delivery of approximately 20 to 28 aircraft this year and to continue making payments for its 2025 aircraft orders.
For the third quarter, it expects a potential 2% decline in unit revenue year-over-year and expects nonfuel costs to rise by up to 13%. These higher expenses could continue to weigh on the airline’s financial performance through the end of 2024.
However, on September 3, Evercore ISI analyst Duane Pfenningwerth upgraded Southwest Airlines (NYSE:LUV) to Outperform from In Line rating with a price target of $35, up from $30. The upgrade shows anticipated improvements in capacity management and new revenue initiatives that the company plans to unveil, such as assigned seating and premium economy options. The analyst also noted the strong underlying value of the airline’s fleet, which may become more apparent through future transactions.
In the second quarter, 23 hedge funds held positions in Southwest Airlines (NYSE:LUV), worth $429.489 million. As of Q2, Elliott Management is the most dominant shareholder in the company after it initiated a position and has a stake worth $171.660 million.
While we acknowledge the potential of Southwest Airlines Co. (NYSE:LUV) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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