Are Airline Stocks a Good Buy in December 2023?

Airline stocks are cyclical. So, interested investors should aim to buy low and sell high to target price appreciation.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published December 6, 2023 9:15 pm EST

| More on: ACCHREIF

Airline stocks have taken a beating recently. Are they a good buy this month? Let’s explore Air Canada (TSX:AC), Chorus Aviation (TSX:CHR), and Exchange Income (TSX:EIF) as potential buy ideas.

Air Canada stock

Air Canada stock is down by close to a third from its peak this year. In the last 12 months, it has declined 8%. So far, Air Canada has reported financial results for the first three quarters of the year.

Year to date, its operating revenue climbed 40% to $16.7 billion, helping the company swing to an operating profit of $2.2 billion versus an operating loss of $159 million in the same period in 2022. Its adjusted EBITDA, a cash flow proxy, also improved to over $3.4 billion versus over $1 billion a year ago.

Although its debt ratios are still high, at least its debt-to-asset and debt-to-equity ratios have improved from a year ago. At $17.53 per share, analysts believe the stock has the potential to appreciate about 72%. Notably, though, Air Canada is a cyclical stock and has high risk. Its long-term debt-to-capital ratio is close to 90% and it has a non-investment grade S&P credit rating of BB-.

Chorus Aviation stock

Chorus Aviation stock is 46% lower from its peak from the start of this year. In the last 12 months, it has fallen by close to a third. Like Air Canada, Chorus Aviation has also reported financial results for the first three quarters of the year.

Year to date, its operating revenue climbed 9% to less than $1.3 billion, while it’s good to see that its operating expenses rose at a lower rate of 4% to about $1.1 billion. Year over year, its operating income rose 54% to $178 million. Its adjusted EBITDA also climbed 10% to $342 million.

As a smaller market cap company, Chorus Aviation maintains lower and more manageable debt ratios. For example, its long-term debt-to-capital ratio is close to 50%. At $2.15 per share, analysts believe the stock has the potential to appreciate close to 72%.

Exchange Income stock

Exchange Income is an airline stock that’s different from Air Canada and Chorus Aviation in that it has acquired a diversified group of operating subsidiaries in the aviation and industrial manufacturing markets. It aims to acquire profitable companies with strong management teams. These companies tend to generate stable cash flows in their niche markets and have organic growth opportunities.

Therefore, Exchange Income is unique in the airlines industry as a monthly dividend payer. In fact, its dividend yield is attractive at 5.8%. Actually, the company has even increased its dividend over time. For your reference, its 10-year dividend growth rate is 4%.

Its long-term debt-to-capital ratio is close to 60%. At $45.58 per share, analysts believe the stock has the potential to appreciate about 37%.

Are airline stocks a good buy in December 2023?

Airline stocks tend to move in tandem, as shown in the graph below. Because of their relatively high volatility, they are probably not good buy-and-hold investments, except maybe for Exchange Income, which seems to pay a safe dividend that produces decent monthly income.

AC, CHR, and EIF data by YCharts

Between Air Canada and Chorus Aviation, Air Canada appears to provide better potential for trading. So, high-risk investors might consider Air Canada at a low.