Raymond James Mass Downgrades American Airlines, Delta And United: Here's Why

June 8, 2015

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In a report published Monday, Raymond James analyst Savanthi Syth said that while the US airline industry appears to be “maintaining capacity discipline,” the recovery in pricing “heading into the seasonally stronger summer months” is expected to be “somewhat muted,” on account of softer-than-anticipated economic growth and “American’s aggressive pricing response to Southwest’s capacity growth impacting markets beyond Dallas.”

Analyst Savanthi Syth downgraded the rating on American Airlines Group Inc (NASDAQ: AAL) from Outperform to Market Perform.

“While we see similar upside at AAL to that of its legacy peers, we believe the risk is greater due to higher earnings volatility, larger potential cuts to 2H15 consensus estimates, and a relatively weaker balance sheet,” Syth said.

The EPS estimates for 2015 and 2016 have been reduced from $9.32 to $8.43 and from $9.50 to $8.15, respectively, to reflect Brent forecast of $66 and $82, respectively.

Raymond James downgraded the rating on Delta Air Lines, Inc. (NYSE: DAL) from Strong Buy to Outperform, while reducing the price target from $60 to $53, to reflect the “lower near term upside.”

The EPS estimates for 2015 and 2016 have been reduced from $4.35 to $4.00 and from $4.90 to $4.45, respectively. “Of note, our estimates do not reflect the potentially lower share count from the recently announced $5 billion share buyback authorization targeted to be completed by YE17,” Syth mentioned.

Analyst Savanthi Syth downgraded the rating on United Continental Holdings Inc (NYSE: UAL) from Strong Buy to Outperform, while reducing the price target from $82 to $68, to reflect the “lower near term upside.”

The EPS estimates for 2015 and 2016 have been reduced from $11.07 to $10.20 and from $11.25 to $10.50, reflecting Brent forecast of $66 and $82, respectively.