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Imperial Downgrades Delta And United Continental, Sees Clear Skies For Most Other US Airline Stocks

Wayne Duggan

Despite some recent headwinds, one Wall Street analyst said Wednesday U.S. airline stocks are cleared for takeoff in 2019.

The Analyst

Imperial Capital analyst Michael Derchin made the following rating and target changes to his airline stock coverage:

  • Delta Air Lines, Inc. (NYSE: DAL) downgraded from Outperform to In-Line, price target cut from $77 to $53.
  • United Continental Holdings Inc (NASDAQ: UAL) downgraded from In-Line to Underperform, price target cut from $110 to $73.
  • Spirit Airlines Incorporated (NYSE: SAVE) reiterated at Outperform, price target cut from $98 to $88.
  • Alaska Air Group, Inc. (NYSE: ALK) reiterated at Outperform, price target cut from $102 to $90.
  • JetBlue Airways Corporation (NASDAQ: JBLU) reiterated at Outperform, price target cut from $27 to $25.
  • Hawaiian Holdings, Inc. (NASDAQ: HA) reiterated at Outperform, price target cut from $49 to $40.
  • American Airlines Group Inc (NASDAQ: AAL) reiterated at Outperform, price target cut from $55 to $45.
  • Allegiant Travel Company (NASDAQ: ALGT) reiterated at In-Line, price target cut from $152 to $125.
  • Southwest Airlines Co (NYSE: LUV) reiterated at In-Line, price target cut from $57 to $52.

The Thesis

Lower expectations and pricing power heading into 2019 have created significant upside for most U.S. airline stocks.

“In addition, there are key structural differences in the industry vs. previous low-fuel environments, most notably the 2015-2016 periods, which we expect to result in unit revenue growth in the U.S. this time around,” Derchin wrote in the note.

Derchin said Delta and United are two exceptions to the general optimism due to their exposure to a weak China market, tough year-over-year comps and the potential for further multiple compression in the stocks. Derchin said investors should stick to stocks with mostly domestic exposure and those with the lowest market expectations.

He named Spirit, Alaska and JetBlue as his top three stock picks.

Related Links:

Goldman Sachs Clears Airline Stocks For Takeoff

Raymond James Sees Favorable Positioning In Delta Air Lines, But Market Unimpressed

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