We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) stands against the other airline stocks.

The COVID-19 pandemic's impact on travel caused an alarming 54.1% drop in the airline industry's revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.

On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government's Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world's largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.

Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.

Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: "Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry's projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.

Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry's revival and expansion in the future years.

Methodology:

We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We've also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

A landscape view of a passenger and cargo airplane taking off from the airport runway.

Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY)

% of shares shorted: 6.80%

Number of Hedge Fund Holders: 13

Renowned for its affordable and top-notch service, Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) has two main business categories: passenger and cargo, and it functions as a low-cost airline.

The airline company serves both group and leisure passengers in the passenger market with its Scheduled Service and Charter Service offerings. On the other hand, the cargo section offers air cargo services through significant collaboration with Amazon. Popular locations in the United States, Mexico, Central America, Canada, and the Caribbean are all covered by Sun Country Airlines.

In its 2024 second-quarter results call, the company reported a mixed financial performance, with growth in some divisions despite larger industry headwinds. The company recorded a 2.6% decrease in overall revenue YoY, of which 7.2% came from scheduled services. Revenues from cargo and charter, however, increased, climbing 1.7% and 2.8% YoY, respectively. Sun Country forecasts a robust winter season for leisure travel, with a mid-single-digit capacity increase on the horizon and fare pressure to lessen.

Thomas Fitzgerald has maintained a Buy rating on the stock, citing the company's strong growth potential and strategic change toward more profitable cargo activities. The actual focus is on the airline company's long-term strategy, especially its goal to increase cargo flying, which is predicted to dramatically improve its financial performance by mid-2025, even though the airline's Q2 2024 results fell short of projections.

Fitzgerald projects that cargo sales will increase from roughly 10% in 2024 to approximately 20% by 2026, doubling from that amount. It is anticipated that this change will strengthen the airline's overall economy and lay a solid basis for its future expansion.

The Minnesota-based airline company’s cautious approach to financial management is demonstrated by its dedication to upholding a solid balance sheet with little net leverage. This careful financial handling helps Sun Country create a significant amount of free cash flow and puts it in a better position to handle the difficulties encountered by American leisure carriers. The stock's attractiveness is further increased by the anticipated increase in free cash flow, which is fueled by growing cargo operations and is viewed as a major factor in prospective capital returns to shareholders.

The possibility of block sales by Apollo, a sizable shareholder, might spur share price growth and present investors with attractive entry positions. These elements, along with Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY)’s strong position in the market and clear strategic direction, support Fitzgerald's optimistic assessment and his buy recommendation for the shares.

It is one of the Best Airline Stocks To Buy According To Short Sellers, with only 6.80% of shares shorted. The 5 analysts have a buy rating and an average target of $19.4, an upside of 91.51% from the current stock price of $10.13.

Overall SNCY ranks 9th on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of SNCY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNCY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.