UBS started coverage of several airline stocks in separate notes Wednesday, highlighting four names it sees as buys.
Southwest Airlines (NYSE:LUV), American Airlines (NASDAQ:AAL), Alaska Air Group (NYSE:ALK), and Delta Air Lines (NYSE:DAL) are the airline stocks initiated with buy ratings, while United Airlines (UAL) and Frontier Group Holdings, Inc. (ULCC) were started at Neutral, and Allegiant Travel (ALGT) and JetBlue Airways (NASDAQ:JBLU) were initiated with Sell ratings.
Southwest was started with a $36 price target. The firm said: "We are bullish on LUV as we see a multi-quarter period of profit recovery unfolding later this year.
"While the near-term is uncertain given slower recovery in revenue per available seat mile (RASM), we believe NT has been derisked following the stock's -17% slide last week."
American Airlines was given a $19 price target. UBS stated: "We expect AAL should see both strong FCF generation and profit acceleration in the next 2-3 years, unlocking higher equity value as net debt moves lower and B/S is delevered. Importantly, we don't think this is priced in."
ALK was given a $54 price target. UBS analysts wrote: "We believe ALK's -15% underperformance vs the JETS ETF post-HA deal announcement has created a compelling entry point."
DAL's price target is $59 at UBS, with the firm saying: "We are bullish on DAL as we see potential upside to FY'24E & FY'25E margins driven by an inflection in unit revenues and moderation in cost pressures beginning 2H'24."
UAL was given a $47 price target, while ULCC was assigned an $8 target.
ALGT was given a $58 price target. UBS analysts explained: "We are cautious on ALGT's shares due to 2 key reasons 1) Downside risk to cons.
earnings estimates due to higher costs & limited scope for NT revenue per available seat mile (RASM) growth. 2) Likelihood for negative FCF over '24 to '26."
For JetBlue, which was given a $5 price target, the firm said: "We are cautious on JBLU as we see its pretax losses, negative FCF, & high leverage persisting into '25."