Airline stocks could still rally another 20% this year, analyst says

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Airline stocks have officially taken off.

High-profile names including American Airlines, United Continental and JetBlue Airways are rallying this week, with the NYSE Airline Index up about 2.5 percent since Monday. They moved higher again Tuesday after an upbeat earnings pre-announcement from Delta Air Lines, which told investors that healthy demand and lower costs would contribute to higher-than-expected first-quarter results.

Better yet, some market watchers see more runway ahead of most of these stocks.

“We really like the industry as a whole,” Erin Gibbs, research analyst at S&P Global Market Intelligence, told CNBC’s “Trading Nation” on Tuesday. “Overall, the airlines actually have some of the strongest earnings growth within any industry within the S&P 500. We’re expecting about 20 percent profit growth for 2019.”

Gibbs emphasized how outsized that prediction is to her 2.5 percent expectation for average profit growth for S&P 500 companies.

“One of the things that has happened within the industry as a whole is they’ve been able to reduce capacity, so airlines actually have a little pricing power. So we’re starting to see increased revenue per passenger as well as increased ticket lines, and just a growing demand in the economy and growing airline demand,” she said. “And … it’s not just one company.”

Matt Maley, managing director and equity strategist at Miller Tabak, agreed, noting that while Delta’s 6 percent stock move on Tuesday was a catalyst for the rest of the airline stocks, that particular name looks close to being near a top.

“It’s maybe getting a little overbought,” he said on “Trading Nation.” “It looks good, it’s broken out of a sideways range that it had been in for about two months, and it’s broken back above its multiyear trend line. But it’s getting overbought on a near-term basis, so even though it looks pretty good, it may need to take a bit of a breather.”

Still, Maley maintained that the airline group was a good way to “play catch-up” to the rest of the stock market, steering investors to the stock of American Airlines, which has tested and held a key support level at $30 three times in the last four months.

“That’s really good support,” Maley said, “Now, … we’re getting close to its trend line going back to early 2018. So if it can follow that successful test of the support level and break out above that resistance level, that trend line, it’s really going to gain a lot of momentum. So that could be a real good one for people who want to play catch-up with the rest of the market.”

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