Airline stocks lost altitude in 2018 with the U.S. Global Jets ETF (ticker: JETS) dipping 3 percent overall year to date. Rising fuel prices and labor costs have kept airline investors grounded this year, but JPMorgan Chase & Co. analyst Jamie Baker recently upgraded a handful of airline stocks based on several catalysts. Baker says a robust demand, depressed valuations and an opportunity for margin expansion has created buying opportunities for airline investors. But not all airline stocks are cleared for takeoff. Here are seven airline stocks to buy, sell or hold.
Hold: United Continental Holdings (UAL)
The plan for United Continental to expand its market share in hubs like Chicago, Houston and Denver hasn’t generated the capacity oversupply and pricing pressures that triggered a sell-off in the stock earlier this year, says Baker who supports United’s efforts to improve its margin profile and close its performance gap with competitors. The company’s goal of hitting $12 in earnings per share by 2020 is reasonable, a target which would represent a 75 percent increase over 2017 EPS. JPMorgan has a “neutral” rating and $95 price target for UAL stock.
Buy: American Airlines (AAL)
American Airlines has been the worst-performing “big four” U.S. airline stock in 2018, lagging behind its peers and declining 28 percent overall. Baker says AAL stock has been punished too harshly for its 2018 margin erosion and predicts a 2 percent capacity expansion in 2019. American’s “basic economy” strategy, he says, has also yielded mixed results. But with the stock trading at a forward earnings multiple of around 6.8, AAL stock is simply too cheap to ignore. JPMorgan has an “overweight” rating and $46 price target for AAL stock.
Buy: Delta Air Lines (DAL)
JPMorgan is projecting 3.1 percent growth in 2019 for its revenue per available seat mile, known as RASM, a measurement used to compare the efficiency of various airlines. But Baker says Delta will lead the way with 4 percent growth. He says Delta has the highest margins among major airlines and is the leading innovator in the industry. Delta’s balance sheet is the gold standard among airlines, clearing the way for both a 2.4 percent dividend yield and aggressive share buybacks. JPMorgan has…
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