Imperial Capital Updates The Airline Industry; American Airlines Is Top Pick

Bob McAdoo of Imperial Capital issued an industry wide update for the airline industry following a mostly better-than-expected quarterly earnings seen in many individual airlines.

"By and large, record third quarter 2014 operating results have been consistent with or better than investor expectations," McAdoo wrote. "In addition, commentary provided by management suggests record fourth quarter results and strong industry fundamentals as we move into 2015."

Alaska Air Group, Inc. (NYSE: ALK) demonstrated a strong margin performance in the face of heightened competition. McAdoo notes that Alaska Air acknowledged it is losing some share, but it is "not enough to bring about more than minor tactical adjustments."

Shares are Outperform rated with a $60 price target.

Allegiant Travel Company (NASDAQ: ALGT) earned $0.80 per share in the third quarter, below the analyst's expectations of $0.95 due to a one-time executive departure costs. However, the analyst notes that the company's operating costs will continue to be negatively impacted by pilot training due to new aircraft deliveries.

Shares are Outperform rated with a $142 price target.

American Airlines Group Inc (NASDAQ: AAL) reported a record third quarter, but lower fuel costs and strong industry fundamentals suggest American Airlines Group will report a record fourth quarter result. Moving in to 2015, the analyst sees the company benefiting from merger synergies which may even exceed the company's previous synergy targets.

Shares are Outperform rated with a $58 price target.

JetBlue Airways Corporation (NASDAQ: JBLU) reported a 2.5 percent passenger unit revenue which fell short of the 3.5 percent the analyst expected. The company indicated the shortfall was due to weakening trends in the Caribbean and Latin American markets. According to McAdoo, shares of JetBlue will trade "directionally with investor sentiment as to the odds the airline makes significant strategic changes in 2015."

Shares are Outperform rated with a $20 price target.

Southwest Airlines Co (NYSE: LUV) reported a relatively in-line third quarter, according to McAdoo, who adds that the company is on track to achieve full year financial objectives and begin growing again. The company will benefit from strong domestic industry trends but in the near-term the company's Love Field flying will be an "incremental negative" due to its promotional nature.

Shares are Outperform rated with a $35 price target.

United Continental Holdings Inc (NYSE: UAL) reported a better-than-expected third quarter result due to a combination of "modestly" stronger revenue and lower operating expenses. Nevertheless, the company's operating margins lags some of its peers and the analyst recommends investors shift their investment dollars away from United Continental to a stronger performer.

Shares are In-Line rated with a $47 price target.