5 SMID-Cap Airliners Getting Killed By This Analyst Downgrade

Gol Linhas Aereas Inteligentes SA (ADR) GOL, LATAM Airlines Group SA (ADR) LFL, Smiles SA SMLE, Hawaiian Holdings, Inc. HA and Republic Airways Holdings Inc. RJET are moving on Tuesday morning after new ratings changes from Deutsche Bank.

Analysts, led by Michael Linenberg, downgraded the five smid-cap stocks from Buy to Hold for different reasons.

Brazilian Weakness

Regarding Gol, Latam and Smiles, Deutsche Bank said its bearishness is "driven by an economic and political backdrop that likely gets worse before it gets better." It will be hard for airliners that generate a large portion of sales from Brazil to "work" this year, the firm added.

The analyst thinks Smiles and Gol will trade in sympathy until a more stable market environment is reached.

Hawaiian: Not Cheap

Hawaiian and Republic, meanwhile, were downgraded for different reasons. Linenberg explained his thesis on the former:

"Hawaiian Airlines (HA) share price has been a very strong performer this past year appreciating 36% versus the 1% drop in the S&P 500...reasons for the outperformance included strong profit growth, CAPEX restraint, strong free cash flow, balance sheet clean-up, and share repurchases...the stock is trading around 10x our 2016 EPS estimate, which is not expensive, but it is not cheap either compared to other US airline stocks, particularly the majors."

Republic Still In Restructuring Mode

Linenberg's reasoning for Republic-related bearishness is more fundamental. The company, he said, is in "restructuring mode," leading the firm to cut its 2016 EPS estimate from $0.90 to $0.45 as the company continues to negotiate with U.S. airline majors.

Deutsche Bank has a price target of $4 on shares of Republic; shares are down 14 percent on the news.

The firm has targets of $1.00 and $6.00 on Gol and Latam, respectively; it sees a target of $35 per share on Hawaiian.