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How Top US Airlines Are Faring on the Valuation Front


Dec. 6 2018, Updated 9:01 a.m. ET

PE multiple

With a return of more than 43% YTD (year-to-date), United Continental (UAL) shares have remained the biggest gainer in 2018. The stock is also among Credit Suisse’s favorite airline (FTXR) picks for 2019.

Despite the remarkable gain, United Continental shares still trade at an attractive valuation multiple. Based on the trailing 12-month earnings, United Continental has a PE multiple of 11.78x. Southwest Airlines (LUV) and Spirit Airlines (SAVE) have trailing 12-month PE multiples of 14.09x and 17.22x, respectively.

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Credit Suisse’s second pick, Delta Airlines (DAL) has the second-lowest PE multiple among the top four US airlines. The stock has a PE multiple of 10.34x, which follows American Airlines’ (AAL) PE multiple of 8.89x. Credit Suisse’s top pick, Alaska Air Group (ALK) has the second-highest PE multiple at 16.04x.

Given analysts’ next 12-month earnings expectations, United Continental, American Airlines, Delta Air Lines, Southwest Airlines, Spirit Airlines, and Alaska Airlines’ PE multiples are 9.46x, 7.46x, 9.30x, 11.51x, 12.06x, and 11.75x, respectively.

EV-to-EBITDA multiple

Relying entirely on the PE multiple might not always be the best way to determine a company’s performance due to the multiple’s various limitations. The multiple doesn’t reflect a company’s debt structure, focus on long-term earnings, and the quality of a company’s earnings. So, investors should examine other valuation indicators like the EV-to-EBITDA multiple, which accommodates the PE multiple’s limitations.

At current market prices, American Airlines, United Continental, Delta Airlines, Southwest Airlines, Spirit Airlines, and Alaska Airlines have EV-to-EBITDA multiples of 6.64x, 6.17x, 6.25x, 7.02x, 9.59x, and 7.77x, respectively.

Given analysts’ next 12-month EBITDA expectations, American Airlines, United Continental, Delta Air Lines, Southwest Airlines, Spirit Airlines, and Alaska Airlines have forward ratios of 5.44x, 5.34x, 5.70x, 6.50x, 6.24x, and 6.85x, respectively.


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