We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Air Transport Services Group, Inc. (NASDAQ:ATSG) stands against the other airline stocks.
The COVID-19 pandemic’s impact on travel caused an alarming 54.1% drop in the airline industry’s revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world’s largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.
Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.
Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.
Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.
Methodology:
We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.
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)
A wide angle shot of a modern commercial jetliner ascending in the sky.
Air Transport Services Group, Inc. (NASDAQ:ATSG)
% of shares shorted: 5.85%
Number of Hedge Fund Holders: 14
Air Transport Services Group, Inc. (NASDAQ:ATSG) operates airlines, leases aircraft, maintains aircraft, and provides various support services, mostly to the package delivery and cargo transportation markets. CAM, ACMI Services, and MRO Services are the three divisions through which it functions.
Stock prices spiked in Q1 2024 when ATSG signed a new deal with Amazon to sail ten more freighters. Following the company’s Q2 2024 results, Truist analyst Michael Ciarmoli raised the company’s price objective for the shares to $15 from $14 and maintained a Hold rating.
A revenue miss was offset by an EBITDA and EPS beat, as well as an increase in the 2024 free cash flow, EPS, and EBITDA outlook. While reduced block hours and higher costs hampered ACMI performance in Q2 2024, demand for freighters remains strong, with the Cargo Aircraft Management segment expecting to place more aircraft in the rest of the year.
The cost of converting aircraft has gone up, which has resulted in higher fleet production costs. Furthermore, the company’s total profitability may be impacted by increased depreciation expenses brought on by the aging of the aircraft fleet.
Positively, Air Transport Services Group, Inc. (NASDAQ:ATSG) has increased its revenue stream by successfully growing its leasing business by adding four more freighters that are leased to outside clients. In addition, the company increased its full-year guidance, demonstrating its confidence in both the prospects for future growth and its present performance.
ATSG is one of the Best Airline Stocks To Buy According To Short Sellers with 5.85% of shares shorted. There are 6 analysts who have collectively rated the stock as a “buy.” The average price objective indicates a possible gain of 28.85% from the current stock price of $16.43.
The company has hedge fund sentiments of 14 in Q2 2024. D. E. Shaw’s D E Shaw is the largest shareholder in the company, with 1,217,665 shares worth $16.89 million.
Overall ATSG ranks 6th on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of ATSG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ATSG 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’.
Disclosure: None. This article is originally published at Insider Monkey.
