Shares of United Airlines (UAL) - Get United Airlines Holdings, Inc. Report, JetBlue Airways (JBLU) - Get JetBlue Airways Corporation Report and Spirit Airlines (SAVE) - Get Spirit Airlines, Inc. Report hit turbulence Wednesday after J.P. Morgan analyst Jamie Baker double-downgraded all three airlines to underweight from overweight.
Baker attributed the move to inflated valuations for the stocks after their recent run-up. That surge has "significantly diminished the implied potential upside" for the companies next year, as they already have breached his 2021 year-end targets, Baker wrote in a report cited by The Fly.
In the last three months, United has soared 28%, JetBlue 17.4% and Spirit 48%, as investors and speculators have anticipated an economic recovery that will send travelers back in the air.
In pre-market trading on Wednesday, United traded at $46.60, down 1.81%; JetBlue at $14.50, down 2.16%; and Spirit at $26.08, down 3.26%.
Baker cut his price target on United to $44 from $47 and on JetBlue to $14 from $16. He left his Spirit target at $25.
“What began as a simple housekeeping response to disappointing but unsurprising 4Q demand trends has, instead, become a recommendation for selective profit-taking,” Baker said, according to Bloomberg.
As for United, the “no-moat rated airline reported a dismal third quarter, as the pandemic continues to significantly depress traffic, though we see reasons for optimism due to substantial sequential improvement as well as the potential for vaccine approval,” Morningstar analyst Burkett Huey wrote in October.
“We are modestly increasing our fair value to $41 from $40.50 to account for a slightly better near-term cargo and loyalty program revenue tempered by a slightly slower recovery in revenue passenger miles,” Huey noted.