Imperial's Airline Stock Picks Amid Trump's Immigration Ban

Airline stocks have been weighed down by the recent Executive Order (EO) that changed requirements for entry into the U.S. from seven countries. The recent Executive Order on Entry, colloquially called an immigration ban, and its consequences have reinforced Imperial Capital’s cautious view on the sector.

Cautious On Sector

As such, Imperial prefers JetBlue Airways Corporation JBLU and Southwest Airlines Co LUV while keeping an in-line rating on the big three carriers — American Airlines Group Inc AAL, United Continental Holdings Inc UAL and Delta Air Lines, Inc. DAL.

Justification

“Our view is supported by the increased risks to PRASM and earnings from the potential unintended consequences on foreign travel caused by the confusion, fear, airport hassles, airport demonstrations, and backlash from companies with foreign workers from the recent Executive Order (EO),” analyst Michael Derchin wrote in a note.

The analyst noted that even before the immigration ban, Atlantic PRASM was expected to remain weak in 2017 due to geopolitical issues, terrorism concerns, Brexit and Its impact on the British pound and an imbalance of supply and demand.

Preferences

Against this backdrop, Derchin prefers carriers with large domestic operations that are immune from global economic and geopolitical risks with a leisure focus. The analyst is also in favor of cargo airlines that benefit from evolving e-commerce structural changes.

Apart from JetBlue and Southwest, the analyst’s best ideas include Hawaiian Holdings, Inc. HA, Spirit Airlines Incorporated SAVE and Atlas Air Worldwide Holdings, Inc. AAWW.

Price Targets And Sector Movements

Derchin has an Outperform rating on all five of the above stocks, with price targets of $29, $68, $63, $68 and $60, respectively.

In addition, the analyst has a price target of $51 for American Airlines, $52 for Delta and $82 for United Continental.

The NYSE ARCA AIRLINE INDEX (XAL) closed Tuesday’s trading at $108.38.

iShares Dow Jones Transport. Avg. (ETF) IYT was also down 1.41 percent on Tuesday to close at $165.40.