The share price of El Al Israel Airlines Ltd. (TASE:ELAL), controlled by Kenny Rozenberg and led by CEO Dina Ben-Tal Ganancia, continues to soar, having completed a rise of 60% since the beginning of December 2024, although it fell back 1.94% yesterday. Yet in November, the assumption in the market was that the airline's share price had already peaked due to the imminent ceasefire in the north, which was eventually signed and is still holding. The understanding that foreign airlines would soon be returning saw El Al's share price fall 20% within a short time in November.
However, although foreign airlines have indeed begun resuming flights to Israel, it seems that the eulogies for El Al's stock were premature. The Israeli carrier's share price continues to rise, including a 35% gain since the start of 2025, and it is currently traded at a market cap of NIS 5.4 billion - the 54th most valuable company traded on the Tel Aviv Stock Exchange (TASE), and it is included on the Tel Aviv 90 Index.
On a broader perspective, the airline's share price has risen by more than 300% since the start of 2023, in particular benefitting from the impact of the war, as foreign airlines have canceled Israel flights, and airfares have risen accordingly. El Al repeatedly broke its own revenue records last year, making a far bigger net profit than it had ever made before ($411 million in the first nine months), paid off debts and even flirted with the idea of acquiring credit card company Isracard.
Despite the jump in the share price, few analysts are negative on El Al's current pricing. Two months ago Daniel Alon, managing partner at IBI's Ram hedge funds forecast that El Al's stock would rise. Even today, he predicts that El Al's stock will continue to rise and insists that it is "still cheap." He says, "People thought that fares would fall when foreign airlines return, but fares have also risen worldwide, due to the global shortage of aircraft. The major aircraft manufacturers Boeing and Airbus are still producing far fewer airplanes since Covid, while at the same time the world's population is growing and more people want to fly, which creates a triple effect."
Alon estimates that airfares in Israel will stabilize with a 10%-20% fall from peak prices in 2024. "Under this assumption, El Al can continue to earn about $250 million each year. When you add to profit rates, and the cash in the coffers, which will be about $500 million to $1 billion by the end of 2025, we draw the conclusion that it is the cheapest airline in the world, and by a considerable margin. People buy shares in the S&P 500 at earnings multiples of 30-40 (company value divided by earnings). El Al is at a multiple of 3.5, the best airlines in the world trade at a multiple of 10, the worst companies at a multiple of 5.
Therefore, the share price should rise another 20%-30% to reach the lower end of the comparison group's pricing, and these are the weakest and most leveraged companies in their field. El Al has undergone a permanent change. Instead of paying financing expenses of $50 to $100 million, it has revenue. Another possibility that is not included in the share price is an announcement of a dividend distribution that could lead to a substantial increase in value of 15%-20% in the short term. El Al recently approached the state to gain permission to bring forward dividend distributions by a year.
"There is pent-up demand"
Shmuel Ben-Aryeh, investments director at Pioneer Capital Management, says, "I am not at all sure that the market is wrong. El Al's very high fares during the war, bordering on exorbitant, filled the cash coffers and cut the debt burden. El Al's financial situation has improved in an unprecedented way. From a company that in 2021 was in doubt whether it would survive, it has become a very stable company, with a debt to a balance sheet of only 36%, compared with 75% in those days, and it is likely that this will improve further.
"Looking ahead, there is a lot of pent-up demand, people need and want to fly. The demand for flights from Israel is already high and if the calm continues, it will be even greater, even compared with pre-war levels. And no less so - the demand for El Al will continue to be high in the next two to three years. People traumatized by flight cancellations remember why they fly El Al, because it is the only one that will continue to fly even during wartime, and that is more important than the price. El Al will maintain the same level of profitability for at least two years."
On the other hand, Ori Tuval, CEO of Tuval Investment House, doubts the stock's pricing: "Despite the return of many airlines to activity at Ben Gurion Airport, the uncertainty in the short term is still noticeable. But in our opinion, El Al is trading at an expensive price - even very expensive. Airfares are not falling to pre-war levels, but the profit levels that investors have become accustomed to will not remain for long. Therefore, I would not buy the stock, and even sell."
Published by Globes, Israel business news - en.globes.co.il - on February 18, 2025.
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