The 2016 Outlook For Airline Stocks: Deutsche Bank Favors Delta, United, Southwest, American, SkyWest

Deutsche Bank's 2016 market research outlook for airline stocks look favorable for United Continental Holdings Inc

, Delta Air Lines, Inc.

, Southwest Airlines Co

, SkyWest, Inc.

, and American Airlines Group Inc

. In an overnight report published Sunday, Deutsche Bank analysts are in favor of this year's underperformers for 2016 and one "self-help" story. Among the large market cap names, the firm highlighted were DAL, UAL and LUV. The firm's favorite small cap name is SKYW which the analysts view as a "self help" story. Deutsche Bank also raised their twelve month target from $54 to $55 for AAMRQ as they placed their valuation to a higher 2016 forecast. The new price target represents 34 percent upside from last close of $41.09 (plus a 1 percent dividend yield). "Major airline stocks are trading at 8.9x our 2016E EPS (fully taxed), which we view as attractive given that they have historically traded 10x – 12x on a forward P/E basis. A key risk for the industry is fuel price volatility; every $1/bbl move in jet fuel prices impacts industry pretax profits by $400 million," the firm commented. Analysts at Deutsche Bank view mixed share price performance within the North American airline industry in 2015 despite record earnings. "Although the US airline industry is on track to achieve a record net profit of $18 billion for 2015, share price performance for some of the names -- notably the Big 3 and LUV -- has been lackluster at best," the firm commented. Investors may be less willing to embrace fuel savings-driven, earnings growth. "The primary risk for 2016 as we see it is that the present set-up is similar to a year ago. While that could spell another year of mixed stock performance, it would, at the very least, allow the airlines to retire a greater number of shares via their capital deployment programs," Deutsche Bank noted.