Here's why airline stocks merit another look, analyst says

By Claudia Assis

BofA also upgrades JetBlue's stock to hold

Shares of U.S. airlines have lagged the broader stock market for months, held back by concerns about the industry's slowing demand and overcapacity.

The sector merits another look, however, as a few tailwinds have emerged, analysts at BofA Securities said in a note Monday. In a separate note, they also raised their rating on JetBlue Airways Corp.'s stock (JBLU) to the equivalent of hold.

After a relatively weaker summer, demand has remained steady, lower capacity is helping prices at a time fuel costs are falling, and there's also seasonality, as U.S. airline shares usually outperform in the fall, according to the analysts, led by Andrew Didora.

Related: Boeing's stock bounces as averted strike and return of Starliner remove headwinds

"We believe now is a good time for investors to revisit quality" airline stocks, including the ones on BofA's buy list, such as Alaska Air Group Inc. (ALK), United Airlines Holding Inc. (UAL) and Delta Air Lines Inc. (DAL), the analysts said.

The upgrade for JetBlue shares is part of that improved background, the BofA analysts said. JetBlue gets an extra boost from its improving fundamentals, as demonstrated last week by the airline's raising guidance.

The BofA analysts raised their rating on the stock to the equivalent of hold from the equivalent of sell, and also increased their price target on the stock to $6 from $3.

That represents a downside of about 20% over Monday's stock price. JetBlue shares have gained 3% this year.

The U.S. Global Jets exchange-traded fund JETS has lost 0.6% this year, while the S&P 500 index SPX has gained more than 8%.

See also: JetBlue downgraded by all three ratings agencies after announcing debt offering

-Claudia Assis

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09-09-24 1202ET

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