Is The Drop In Airlines A Buying Opportunity?
In a recent report, analysts at Credit Suisse gave their sector update on the airline industry. Analysts have a very bullish overall outlook for the airline group.
Valuation Upside Despite Higher Fuel Price Projections
Analysts recently adjusted their projections for crude oil prices higher after January's bounce. Credit Suisse is now assuming $75 per barrel for Brent in 2016.
The revisions in fuel prices led to slight revenue projection adjustments for the airline group, but analysts still see earnings growth potential for airline stocks.
Credit Suisse predicts earnings growth through 2016 for Delta Air Lines, Inc. (NYSE: DAL), United Continental Holdings Inc (NYSE: UAL), Spirit Airlines Incorporated (NASDAQ: SAVE), Southwest Airlines Co (NYSE: LUV) and JetBlue Airways Corporation (NASDAQ: JBLU).
Analysts believe the only major name in the space that might not see earnings growth is American Airlines Group Inc (NASDAQ: AAL), which could see a "modest," fuel-related decline.
However, analysts expect that the company's earnings will lead to a higher multiple once the integration is completed in early 2016.
What About Forex?
Despite forex headwinds, they believe that the recent sell-off in airline stocks is overdone.
Sentiment in the space seems to be overly negative at the moment, and analysts are predicting continued volatility in the near term.
Long-Term Bullish Case
Credit Suisse analysts feel that the recent pullback has provided a good entry point for patient investors.
"We continue to see the U.S. airline sector as attractive, especially given a widening valuation spread to the S&P and broader industrials, despite a lower industry risk profile, rising FCF yields and shareholder returns," they explain in the report.
Credit Suisse names United Continental as its top pick in the space.
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Latest Ratings for UAL
|Oct 2016||Imperial Capital||Maintains||Outperform|
|Oct 2016||Bernstein||Initiates Coverage On||Market Perform|
|Aug 2016||Raymond James||Upgrades||Market Perform||Outperform|
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