Deutsche Bank Upgrades American Airlines (AAL), Delta Air (DAL), and United Airlines (UAL) to Buy

Deutsche Bank upgraded American Airlines (NASDAQ: AAL) from Hold to Buy with a price target of $40.00. Delta Air Lines (NYSE: DAL) was raised to Buy with a price target of $48 and United Airlines (NYSE: UAL) was raised to Buy with a price target of $59. Analyst Michael Linenberg sees more favorable risk/reward.

"We are raising our ratings on AAL, DAL and UAL to Buy from Hold as we are of the view that all known negatives (Brexit, tepid global economic growth, over-supplied markets, etc.) are more than fully discounted in the share prices which are, on average, trading at 6.4x our 2016 EPS estimates and 6.8x our 2017 EPS estimates. (Our 2016 and 2017 EPS estimates were recently lowered by 10% and 15%, respectively)" said Linenberg.

"What does not seem to be reflected in the share prices is a near-term improvement in the second derivative of PRASM/RASM, which we think is probable (in fits and starts) as we move through 2H of 2016 and into 2017. Moderating capacity growth, strengthening of key currencies (save for the British pound), higher fuel surcharges, and a decent US economic backdrop should collectively result in less negative PRASM/RASM," continued the analyst.

Linenberg added, "Regarding the stocks, in our experience, they usually hit bottom before PRASM/RASM inflects. In light of the current valuations, we think downside is limited and that therefore investors can afford to be early given the rapidity in which airline share prices can appreciate once it becomes apparent that trends are indeed getting better.Given our view, we are raising our PTs for AAL, DAL and UAL as we believe better sentiment will result in higher multiples being applied to airline shares."

For an analyst ratings summary and ratings history on American Airlines click here. For more ratings news on American Airlines click here.

Shares of American Airlines closed at $31.16 yesterday.

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