What's The Best Airline Stock? Barclays Has An Idea

In a report published Monday, Barclays analysts discussed Airline stocks, while highlighting that sentiments seemed to be surprisingly soft. In the report Barclays noted, "It continues to surprise us that even on ‘normalized' earnings (i.e. $80/bbl oil and a one-time fuel benefit) larger US airline stocks have de-rated as much as 20% since last fall. For an industry set to produce 1Q margins that rival full year 2014 margins, market sentiment remains surprisingly tepid, particularly for SAVE and international exposure. " Although there are headline concerns, the stocks seem to be already pricing in RASM and capacity woes, and maybe even the macro concerns. The analysts named

as their top pick, while adding that there could be "solid upside potential" for

,

,

United Continental Holdings, Inc

and

. "We see 20% upside potential on average using fall 2014 forward multiples on 2016 estimates that are built on $80 oil. Oil and FX make forecasts more volatile, but we think the basic premise of limited fleet growth through limited capex is still driving improving earnings power for airlines," Barclays mentioned. The analysts believe that certain airline stocks, especially AAL, DAL and SAVE, are reflecting 2-3 points of weaker RASM than the estimates. "…we've seen SAVE's P/E premium to LUV come in 15-20% since mid 2014. For those looking to avoid international, we think SAVE is the best domestic option, followed by LUV," the analysts commented. Barclays maintained an Overweight rating on SAVE ($110 PT), AAL ($68 PT), LUV ($52 PT) and UAL ($88 PT), while reiterating an Equal Weight rating on

($68 PT) and an Underweight rating on

($167.00 PT).