Bank of America Merrill Lynch analyst Andrew Didora raised his price target on some U.S. airlines including Delta Air Lines (DAL) , Southwest (LUV) , United Airlines (UAL) , American Airlines (AAL) , Alaska Air Group (ALK) , and JetBlue Airways (JBLU) .
Didora pointed to the return to positive unit revenue in the second quarter, saying the question will be whether the trend can continue into the third quarter and second half of the year. He estimated that the revenue per available seat mile, known as RASM, will likely remain even through the rest of the year, with Delta and Southwest benefiting the most from declining capacity.
Those airlines will also likely benefit from easy comps, he wrote. Delta saw $1.70 earnings-per-share in the third quarter of 2016, while Southwest saw an EPS of 93 cents a share that quarter. Consensus estimates for the companies' third quarters this year are $1.74 for Delta and $1.09 for Southwest, according to Factset data.
United made news in April after a video surfaced of a bloodied passenger being forcibly dragged off a plane. The stock took a heavy hit, falling about 4% and reducing the company's market cap by about $770 million to $21.5 million the week the video circulated. The stock has since recovered and is up to $76.70, up 5.24% year-to-date.
The BofA Merrill Lynch airline price index is up 2.9% this year, and 3.29% over the past six months. The index is down 2.73% over the past 12 months.
Didora's rating target increases include the following:
- Delta to $71 from $64 while maintaining a "Buy" rating.
- Southwest to $75 from $62 while maintaining a "Buy" rating.
- United to $105 from $85 while maintaining a "Buy" rating.
- American to $42 from $40 while maintaining an "Underperform" rating
- Alaska to $120 from $115 while maintaining a "Buy" rating.
- JetBlue to $28 from $27 while maintaining a "Buy" rating.
- Spirit Airlines (SAVE) to $68 from $75 while maintaining a "Buy" rating.
- Allegiant Travel (ALGT) to $165 from $175 while maintaining a "Neutral" rating.
- Hawaiian Holdings (HA) to $43 from $47 while maintaining an "Underperform" rating.
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