Why This BofA Securities Analyst Is Cutting Airline Price Targets

The underlying fundamentals in the airline sector remain challenging. Against this backdrop, investors should focus on quality names such as Delta Air Lines, Inc. DAL, rather than those with higher operating and financial leverage like United Airlines Holdings Inc UAL and American Airlines Group Inc AAL, according to BofA Securities.

The Airlines Analyst: Andrew Didora reiterated a Buy rating for Delta Air Lines, while reducing the price target from $48 to $47. The analyst maintained an Underperform rating for United Airlines Holdings and American Airlines Group, while lowering their price targets from $42 to $40 and from $10 to $8, respectively.

The Airlines Thesis: While CASM-ex (cost per available seat mile ex-fuel) in the airline sector is likely to remain under pressure in 2022, the consensus estimates seem high, and “demand will continue to be driven by the consumer with corporate travel accelerating as offices re-open in 1H22,” Didora said in the note.

“Similar to DAL, which expects a 60-day delay in the recovery due to Omicron, AAL and UAL both expect near-term headwinds before a strong rebound in March through the summer,” he added.

The analyst reduced the 2022 estimates for Delta Air Lines from earnings of $2.09 per share to $1.13 per share, United Airlines Holdings from earnings of 96 cents per share to a loss of $1.83 per share, and American Airlines Group from a loss of 46 cents per share to a loss of $2.28 per share.

Price Actions: As of Monday morning at publication, AAL shares were down 4.51% at $15.57, UAL were down 6.07% at $39.12 and DAL were down 4.41% at $36.19.

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