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Airline shares dip on downgrade

NEW YORK (AP) -- Airline stocks dipped slightly on Tuesday, with the main declines felt by US Airways Group Inc. and United Continental Holdings Inc. after downgrades by J.P. Morgan analyst Jamie Baker.

A merger of US Airways and American is widely expected. If it happens it will be viewed positively on Wall Street. Baker wrote that he, too, expects a merger. "The problem is so does everybody else," he wrote in a note late Monday. That means the additional upside for US Airways shares may be limited, Baker said. He cut US Airways shares from "Overweight" to "Neutral."

US Airways fell 34 cents, or 2.3 percent, to $14.33 in morning trading. A year ago — before the merger talk — they were in around $6.

Baker also downgraded United Continental to "Neutral" from "Overweight." In United's case, that's mostly because it is getting closer to his $30 price target for the stock. On Tuesday United was down 27 cents at $25.72. Considering that United is closer to his price target and that the airline has had trouble delivering on its goals in the past year, the risk vs. reward for the stock "looks decidedly less attractive than when the stock traded at $18," Baker said.

Overall, he wrote, "we're as bullish as ever on the sustainability of the industry's restructuring." Airlines are benefitting from lower costs, consolidation, fees for add-ons, lack of new competition and managers that are focused on shareholder returns. "But stocks aren't as fundamentally undervalued as they once were," Baker wrote. In the short term, he thinks Delta has better potential.

Shares of Delta Air Lines Inc. rose 5 cents to $13.49. Southwest Airlines Co. added 2 cents to $11.04, and JetBlue Airways Corp. fell 5 cents to $5.85.