Airline stocks had previously topped out in early to mid-July. Since, they have been sliding lower and lower, with many recently bottoming earlier this month. Hurricane Harvey and Hurricane Irma didn't help matters, giving bad press to most over alleged price gouging -- with the exception of JetBlue Airways (JBLU) - Get Free Report -- and disrupting service in those areas.
Oil has stabilized and rallied slightly over the past few months, which also doesn't help the case for the airline stocks, particularly as some lowered their outlook on revenue and other key metrics.
However, the airline stocks aren't all bad news. In fact, most now run profitable operations, while Wall Street tends to give many of them a very low valuation. So what do the analysts think?
On Wednesday, Raymond James analyst Savanthi Syth upgraded Southwest Airlines (LUV) - Get Free Report to outperform and assigned a $65 price target. The target implies about 25% upside from current levels. Syth explains that the "fare war" between airlines will have a "muted impact" to Southwest's stock, given its less exposed routes and near-term passenger capacity rates. Unit cost pressures should subside in 2018, he reasoned, mostly related to labor costs, fuel hedges and aircraft depreciation.
JPMorgan analyst Jamie Baker made the bull case for Southwest last week as well, assigning a price target of $66 in the process. Both analysts make a reasonable case for shares to climb more than 25% from current levels.
- American Airlines Is Totally in Love With Its Charlotte Hub - Here's Why
- After Hurricane Irma, Get Ready to LUV Airline Stocks Again
- United Airlines Cuts Revenue Guide by $400 Million and Shares Drop
Syth also downgraded United Continental to market perform from outperform. Profitability will likely take longer than its peers, he reasoned. However, Syth did not downgrade America's stock. In fact, he actually upgraded it to outperform and assigned a $58 price target. The target implies more than 30% upside from current levels.
He argued that corporate and premium customer initiatives are starting to show their potential, while international premium economy seating could boost margins and revenue. The cost structure can improve as well, he said.
More of What's Trending on TheStreet:
- The Handmaid's Tale Emmy Win Is Really Big for Netflix
- A Sprint/T-Mobile Deal Still Faces Big Hurdles, Especially for Sprint
- Coolest Apple iOS 11 Features That You Might Have Missed
- The 10 Most Expensive Zip Codes to Live in the U.S
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.