Credit Suisse Just Slashed Airline Estimates

In a report rolled out Wednesday, Credit Suisse analysts Julie Yates and Krishna Vege lowered their estimates for U.S. airlines to reflect higher fuel prices, as well as some modest changes to the firm’s unit revenue forecasts. Target multiples were also trimmed by 1-2 turns, to account for weak investor sentiment.

Despite the lower multiples on poorer earnings, the experts say, the sector still looks alluring from a valuation standpoint; their new price targets yield, in average, 28 percent potential upside.

The analysts add that they do worry that “the sector may be range bound until messaging improves and capacity/pricing concerns alleviate, but think solid Q2 results and large buybacks could help.”

Related Link: Is Delta A 'Buy The Dip' Opportunity?

Below is a table that features material EPS and target price changes for American Airlines Group Inc AAL, Delta Air Lines, Inc. DAL, United Continental Holdings Inc UAL, Southwest Airlines Co LUV, Alaska Air Group, Inc. ALK, Spirit Airlines Incorporated SAVE, and Virgin America Inc VA.

A Catalyst Light Near-Term

According to the report, Credit Suisse sees “few meaningful catalysts” for the sector (until the next earnings round in July) “to materially improve sentiment as May traffic is likely to underwhelm given tough comps.”

The analysts comment, in conclusion: “Three airlines present at next week's competitor conference (UAL, DAL, ALK) on June 4^th with a few more the following week (JBLU) and while there are HQ visits for most all over the next month, the sentiment breakdown has been pervasive.”