JPMorgan Upgrades American Airlines: Is The Industry Back?

Shares of American Airlines (NASDAQ:AAL) climbed on Tuesday morning after the company received a significant analyst upgrade. Now, will the rest of the industry follow suit?

J.P. Morgan (NYSE:JPM) analyst Jamie Baker upgraded American Airlines to “neutral” from “overweight” in a note to clients on Tuesday. Baker also increased his price target for the airline company to $61 per share from $52 per share—which represents a jump of over 20% from Monday’s close.

American Airlines shares gained 2.3% premarket, but the stock is now only up marginally through morning trading. The airline has had an up and down year and sits roughly $3 below its 52-week high of $54.48 per share, which it reached in mid-July.

American Airlines beat both earnings and revenue estimates when it reported its second-quarter earnings on July 28. But the positive report didn’t send the stock soaring.

The U.S. airline industry suffered as a whole from less than stellar second-quarter earnings reports—United Continental (UAL) and Spirit Airlines (SAVE) were both down more than 10% in July. Yet, today, American Airlines is up because J.P. Morgan’s Baker notes that the industry could be prepared to turn things around overall.

"Cost convergence, fare unbundling, widespread consolidation, diminished new entrant activity, and return-oriented management teams have combined to form an industry that is actually managing itself for the first time we can recall," Baker wrote in a note to clients Tuesday. "We believe the US airline industry will continue to take steps to ensure profitability and continued balance sheet repair."

The analyst also raised American Airlines 2018 earnings per share estimate to $6.20 per share from $5.47 per share.

"American is in the midst of several revenue accretive initiatives including an expansion of Basic Economy and higher paid load factors in the domestic premium cabin, and we believe these initiatives will drive higher returns and stronger unit revenue," he continued.

American Airlines is currently a Zacks Rank #2 (Buy) and scored an “A” grade for both Value and Growth, as well as a “B” for Momentum in our Zacks Style Score system.

Airline Industry

Today’s American Airlines upgrade has helped some of the rest of the sector as well. Spirit (NASDAQ:SAVE) jumped 4.48% in early Tuesday morning trading. United (NYSE:UAL) , Southwest (NYSE:LUV) , Delta (NYSE:DAL) , and JetBlue (NASDAQ:JBLU) all saw marginal gains.

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