There’s a “clear path to reopening” for the air travel industry and despite recent share gains, airline stocks are “attractive,” analysts at Morgan Stanley said, upgrading their ratings on Alaska Air Group Inc. and United Airlines Holdings Inc shares.
The analysts, led by Ravi Shanker, upgraded their view on Alaska /zigman2/quotes/200972303/composite ALK -1.17% stock to the equivalent of buy, from hold, and bumped their price target on the shares to $90, from $49. Their rating on United /zigman2/quotes/205037281/composite UAL -3.21% went to hold, from sell, and the price target increased to $65, from $37.
The Morgan Stanley analysts also started covering American Airlines Group Inc. /zigman2/quotes/209207041/composite AAL -3.76% shares at the equivalent of sell, setting a price target of $20, and increased their price targets on JetBlue Airways Corp. /zigman2/quotes/207639051/composite JBLU -3.41% to $30, from $18; Delta Air Lines Inc. /zigman2/quotes/200327741/composite DAL -3.35% to $72, from $55; and Southwest Airlines Co. /zigman2/quotes/201071949/composite LUV -2.63% to $80, from $59.
Overall, the analysts said they see about 30% of upside for their price targets on the airlines and about 45% upside on their quarterly financial estimates, thanks to a “quick rebound of air traffic, structural cost savings and a supportive jet fuel environment,” they said. Most estimates for next year still don’t factor in a “rapid reopening,” they said.
American will rise with the industry tide of returning air traffic, but the stock is up more than 50% year-to-date, limiting its upside, the analysts said. For Alaska and United, “we see more favorable relative risk-rewards than previously,” they said.
Airline stocks are collectively up around 70% to 80% since the first good news on vaccines in November, the analysts said. That has given rise to some concerns that the stocks have moved “too far, too fast” and a trade on the reopening is over, they said.
“We disagree and see the airlines as more than just a reopening trade — in fact we believe the fundamentals are supportive of upside from here,” the analysts said.