Slowing Global GDP, Ebola Offset by Declining Fuel Prices; Deutsche Bank Remains Bullish on Airlines (LUV) (UAL) (DAL) (AAL)

Deutsche Bank maintained a Buy rating on Southwest (NYSE: LUV) and raised its price target to $40.00 (from $32.00). Other stocks mentioned in the report include buy-rated United Airlines (NYSE: UAL), Delta Air Lines (NYSE: DAL), and American Airlines Group (NASDAQ: AAL).

Analyst Michael Linenberg thinks airlines are on tract to post a strong quarter. He went on to say slowing global GDP and fears about Ebola are offset by declining fuel prices.

"We are forecasting an industry net profit for the seasonally-strong Sep Q of $4.0 billion which represents a 30% gain compared to last year's net profit of $3.0 billion," said Linenberg. "Not only will this be a record Sep Q net profit, but the underlying operating margin of 13.7% is similar to what was observed during the industry's last peak earnings period (1996 - 1999). While this is a very good result, airline stocks have been under pressure of late as investors weigh the impact of slowing global GDP and the threat of Ebola on future profits. Thus far, int'l revenue weakness has been more than offset by declining fuel prices."

"We are forecasting Sep Q unit revenue (RASM) for the industry to increase 2.5% on 2.7% capacity growth (vs. June Q RASM +5.7% on +2.0% ASMs). As we look toward Dec Q 2014, we are anticipating flattish RASM trends as slower global GDP growth impacts int’l revenues. At this point, we think this weakness will be more than offset by lower fuel prices and a relatively stronger domestic market, which still accounts for a majority of the industry’s revenues (55% - 65% for the Big 3). As such, we are raising many of our Dec Q EPS estimates (our industry pretax profit for the Dec Q is going from $2.6 billion to $2.8 billion) and are still anticipating margin expansion," he added.

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

Shares of Southwest closed at $31.32 yesterday.

You May Also Be Interested In

• Growth isn't weak enough to truly undercut inflation pressures - BMO
• American International Group (AIG) PT Raised to $89 at Piper Sandler
• Piper Sandler Downgrades Magnolia Oil & Gas Corp. (MGY) to Neutral