UBS: 6 Airline Stocks to Buy, 2 to Avoid

Southwest Airlines (LUV) has been given a neutral rating by UBS with a price target of $9.5 per share. Southwest Airlines operates as a passenger transportation airline in the U.S. The company has 548 Boeing 737 aircrafts and provides transportation to 69 cities in 35 states. The company also sells frequent flyer credits and related services to companies participating in its Rapid Rewards frequent flyer program. The stock is trading slightly expensive at 11 times the forward P/E ratio as compared to its peer average of 9.9. However on the basis of a 12-months trailing EV/EBITDA, the stock is trading at a discount at 4.5 times compared to its peer average of 5.2. It also trades cheap at 1 times the price-to-book-value. The stock offers a small dividend yield as compared to its regional peers offering no dividends. Bill Miller's Legg Mason is among Southwest investors.

United Continental (UAL) has been given a buy rating by UBS and a price target of $35 per share. United Continental offers passenger and cargo air transportation services. The company operates a total of 5,675 flights in a day to 372 destinations worldwide. The stock trades extremely cheap on valuations. On a forward P/E basis, a 12-months trailing EV/EBITDA basis and a P/FCF basis, the stock is trading at 3.5, 2.9 and 4.0 times compared to its peer average of 9.9, 5.2 and 10 respectively. John Griffin's Blue Ridge Capital cut its stake in UAL by 54% during the third quarter.

Allegiant Travel (ALGT) has been given a buy rating by UBS with a price target of $61 per share. The company, through its subsidiaries, operates as a leisure travel company in the U.S. It operates a fleet of 51 MD-80 aircrafts and 1 Boeing 757-200 aircraft, and also owns and leases 3 Boeing 757-200 aircrafts. Allegiant provides charter air services under long-term contracts, as well as on a seasonal and ad-hoc basis. It primarily sells air travel on a stand-alone basis, as well as bundled with hotel rooms, rental cars and other travel-related services. Allegiant is the most expensive stock on the basis of valuations among the regional airline companies. On a forward P/E basis, a 12-months trailing EV/EBITDA basis, and a P/FCF basis, the stock is trading at 13.6, 6.1 and 14.4 times compared to its peer average of 9.9, 5.2 and 10 times respectively.

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