The Rationale Behind Cowen's Airline Bearishness

The firm, however, raised its ratings on WestJet Airlines Ltd. WJA WJAFF.

Significant Multiple Expansion

Analyst Helane Becker noted that airline stocks and multiples have improved significantly, as demand and business improved post the U.S. presidential election. The share gains, according to the analyst, are the result of multiple expansion and not earnings improvement.

Margin Compression A Worry

Although expecting unit revenues to improve by 0.7 percent in 2017 compared to a 4.5 percent drop in 2016, Cowen feels margins are likely to be down due to higher costs on jet fuel and labor. The firm expects capacity of airline stocks in its universe to improve by 2.5 percent on top of the 3.5 percent growth in 2016, with the domestic market driving growth. Given the margin pressure, the firm forecasts a 20 percent decline in adjusted net income in 2017, with the first quarter seeing the steepest drop.

Cowen's Top Picks For 2017

Ratings, Price Targets

• Air Canada: Downgraded to Market Perform from Outperform; $15 price target.
• Alaska Airlines: Downgraded to Market Perform from Outperform; price target raised to $95 from $92.
• American Airlines: Downgraded to Market Perform from Outperform; $50 price target.
• Delta Airlines: Maintained at Outperform; $57 price target.
• JetBlue: Downgraded to Market Perform from Outperform; $23 price target.
• Southwest Airlines: Maintained at Outperform; price target raised to $55 from $44.
• Spirit Airlines: Downgraded to Market Perform from Outperform; price target raised to $58 from $53.
• United Continental: Downgraded to Market Perform from Outperform; price target lowered to $75 from $77.
• WestJet Airlines: Upgraded to Market Perform from Underperform; price target raised to $22 from $19.