Analyst Upgrades Delta, Names Alaska Air Top Airline Pick For 2022

Airline stocks lagged the broad market recovery in 2021, and the COVID-19 omicron variant outbreak in the fourth quarter negatively impacted the global travel industry for the holiday season.

One analyst said Friday that some airline stocks may finally be cleared for takeoff in 2022.

The Analyst: Bank of America analyst Andrew Didora made the following ratings changes on Friday:

• Delta Air Lines, Inc. DAL upgraded from Neutral to Buy, price target raised from $46 to $48.
• Frontier Group Holdings Inc ULCC upgraded from Neutral to Buy, price target cut from $19 to $18.
• Mesa Air Group Inc MESA downgraded from Buy to Neutral, price target cut from $12 to $8.
• Allegiant Travel Company ALGT downgraded from Buy to Neutral, price target cut from $225 to $200.

Related Link: Airline Stock Short Interest Up 30% Since Omicron Variant Discovered

The Thesis: In his 2022 airline outlook, Didora said the biggest theme for investors in the coming year may be the return of corporate travel. Didora also said airline stock sentiment is at its lowest in recent memory following the omicron outbreak, and periods of bearish investor sentiment have historically been excellent times to buy airline stocks.

“In 2022, we want to stay valuation disciplined, and this optimism may fade later in the year as underlying fundamentals remain tough with cost structures bloated, high industry capacity, and consensus estimates that still appear too high,” Didora said.

In addition to the upgrades of Delta and Frontier, Didora named Alaska Air Group, Inc. ALK as his top stock pick for the year. Didora is particularly bullish on Alaska’s cost focus, clean balance sheet and relatively low valuation.

Benzinga’s Take: Didora recently reported that short interest in airline stocks is up 30% since the outbreak of the omicron variant.

If airline stocks start to move higher in the near future, that short interest could provide jet fuel for the rally if it forces short sellers to cover their positions.