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

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

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