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Why you should know: The recent troubles of Boeing 737 Max have caused airlines to reschedule flights and investigate their aircraft for any defects. Valuations for airline stocks are cheap now and this article will investigate where are there any opportunities to look out for.

U.S. Airline Sector as a Whole Is Cheap Now

Based on data from Simply Wall Street, the U.S. airline sector traded at a median price-to-earnings ratio of 9.2 times in January 2024. This is lower than the 3-year average of 18.8 times. If we look at other valuation metrics, its price-to-sales ratio is at 0.4 times, lower also to the 3-year average of 1.1 times. Both valuation metrics suggest a 104% and 175% gain if PE ratios trade back up to their respective averages.

Delta Air Lines

Delta Air Lines is currently trading at a very low PE ratio of 5.6 times. It averaged 11.3 times from 4Q 2022 to 3Q 2023 before the recent 737 Max troubles in 4Q 2023. If we go further back before the pandemic, its historical average was around 9 times. Based on the Wall Street Journal, analysts are giving Delta a BUY call with a target price of US$54.09. This is an upside of 35.2% from the current share price of US$39.98.

United Airlines

United Airlines trades at a current PE ratio of 5.3 times, which is lower compared to the average of 9.2 times from 4Q 2022 to 3Q 2023. Furthermore, this is also cheaper compared to the pre-pandemic average of 9.4 times. Market analysts are giving United Airlines an OVERWEIGHT call with a target price of US$63.73. This implies an upside of 53.2% from the current share price of US$41.37.

American Airline

American Airlines’ PE ratio stands at 11.6 times now and is below the historical average of 12.7 times from 2017 to 2019. Analysts in the Wall Street Journal project a US$17.43 target price for American Airlines, which is an upside of 19.7% from the current share price of US$14.56.

Ryanair

At the current juncture, Ryanair is trading at a PE ratio of 10.9 times, which is lower than its historical average of 16.3 times. Trading View’s data suggests that analysts are looking at a Buy investment call with a target price of US$164.37. This implies an upside of 19.3% from the current share price of US$137.68.