Some of most profitable airline stocks on sale after recent battering, BofA

Investing.com -- Airlines stocks continued to skid in July, underperforming the S&P 500 for the third-straight month, but BofA says the most profitable Airlines are now trading a discount after softer guidance prompted analysts on Wall Street to downgrade earnings estimates. 

Airline stocks fell 6.9% in July compared to the S&P 500’s 1.1% return, BofA said, driven by a negative "EBITDAR revisions on broadly weak guidance updates."

American Airlines Group (NASDAQ:AAL) and domestic carriers Spirit Airlines Inc (NYSE:SAVE) and JetBlue Airways Corp (NASDAQ:JBLU) saw "the deepest negative revisions under pressure from a weak revenue environment and oversupplied domestic market," BofA adds, with the group seeing an average revision of 14.6%.

American Airlines Group Inc. in Q2 slashed its unit revenue guidance for the year amid an industry wide capacity glut. 

But the steep slump has pushed some of the most profitable airline stocks below their historical ranges to trade a deep discounts.  

On a 2024 earnings before interest, taxes, depreciation, amortisation and restructuring or rent cost, or EBITDAR estimate, ratio about 67% airline stocks' trade below the midpoint of historical ranges and 44% of airlines are trading below their historical midpoint for 2024 and 2025, BofA estimates. 

United Airlines Holdings Inc (NASDAQ:UAL) and Alaska Air Group Inc (NYSE:ALK) offer the steepest discount among the group, BofA estimates, trading at 13.7% and 13.3% discount to thie historical midpoint on 2025E EBITDAR, while Delta Air Lines Inc (NYSE:DAL) trades nearly in-line 0.6% premium.

But JetBlue Airways Corp (NASDAQ:JBLU) and Spirit Airlines Inc (NYSE:SAVE) trade at elevated EBITDAR multiples, a premium of 92.7% and 512.4%, respectively, versus historical multiples "given significant leverage and EBITDAR that is 44% and 76%, respectively," it added.