Airline stocks outperform S&P 500 in October: BofA

Investing.com -- Airline stocks outperformed the S&P 500 in October, registering a strong 20.2% gain during the month, compared to the 8.1% jump in the index, according to Bank of America (NYSE:BAC).

Except for Spirit Airlines (NYSE:SAVE), all airline companies posted positive returns, with JetBlue Airways (NASDAQ:JBLU) being the only other airline to underperform relative to its peers.

Year-to-date figures show the group's returns at 33.1%, which is well ahead of the S&P 500’s 19.6%.

The trend of seasonal outperformance for airlines, which typically spans from September to November, continued into October. This period saw the second-strongest October for airlines relative to the S&P 500 since 2008, following a record-setting September.

“Earnings season provided confirmation that lower capacity is helping to drive yields and initial commentary suggests an encouraging capacity backdrop into 2025, with January and February schedules up just +1%,” BofA analysts Andrew G. Didora and Samuel Clough noted.

“Looking ahead, airline stocks have outperformed the market 63% of the time in November,” they added.

In terms of valuation, BofA notes that a majority of airline stocks are currently trading above the midpoint of their historical valuations based on 2024E and 2025E EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs).

Alaska Air (NYSE:ALK) stands out as the only airline trading below its historical midpoint on 2025E EBITDAR projections. Meanwhile, shares of United Airlines and Delta Air Lines (NYSE:DAL), both carrying buy ratings, have seen their multiples expand recently.

United Airlines is now trading at -9.7% below the 75th percentile of its historical multiples for 2025E, whereas Delta Air Lines is trading 2.2% above the same benchmark.

The performance of airline stocks in October was mainly attributed to revisions in multiples, as indicated by the changes in their valuations.

Moreover, earnings estimates were adjusted upward this season, particularly benefitting domestic carriers due to improving domestic pricing trends. Spirit Airlines and Southwest Airlines (NYSE:LUV) experienced the most significant estimate revisions in October, with increases of +119.2% and +21.5%, respectively.