Major aviation companies survived what was to be the worst quarter in modern aviation history. As expected, the carriers lost billions of dollars, and the topic that emerged is that their recovery in the Kovid-19 cases stalled in July and the states imposed quarantine measures.
Most airlines are now cutting flights scheduled for early summer and early fall, down to conserving cash. Analysts are still adjusting their price targets and projections for the industry. But so far, many ratings have not changed or reversed.
Rai, quite simply, all stays on the airline’s map.
JPMorgan analyst Jamie Baker maintained its underweight rating on American Airlines Group (ticker: AAL). An amount analysis, in which American’s mileage loyalty programs, brands, gate slots, and other assets would be valued at $ 70 billion, more than 10 times the carrier’s $ 6 billion equity-market capitalization. Baker’s writes, but American’s equity value is “trapped” by debt and other liabilities, which are expected to be $ 40 billion by the end of 2020.
American’s revenue base won’t get back to 2019 levels for a few more years; It is expected to be 74% of its level in 2019 in 2021. And without a way to get out of its debt (lack of insolvency restructuring), Baker writes that “it’s challenging for us to imagine taking a more in-depth approach, even if” the stock drops meaningfully from here.
Baker Spirit Airlines (SAVE) shares see more risk than reward, giving it an underweight rating. However, he raised his price target on South West Airlines (SAVE) from $ 40 to $ 41 while maintaining a neutral rating. And he has an overweight on Alaska Air Group (ALK), which has raised his price target from $ 54 to $ 55.
Citi’s Stephen Trent sidelined Southwest’s rates on neutral with a target of $ 38 and argued that American’s stock was overvalued, rating it in SAIL with a target of $ 14. He is positive on Spirit, writing that the carrier is “well positioned to capitalize on the gradual rebound of friends and relatives (VFRs) and tourist travel.” However, he trimmed his price target from $ 22 to $ 21.
Raymond James analyst Sawanthee Sith does not make much headway in the US, rating it on underperform. She maintained the equivalent of neutral ratings on United Airlines (UAL) and Spirit, and said that she preferred Delta Air Lines (DAL) among legacy carriers. She also sees more leverage for Southwest, giving it a Strong Buy rating with a $ 45 price target.
Cowen’s Helen Baker trimmed her price target from $ 40 to $ 39 in the southwest, but maintained her outperform rating. “The Southwest has an industry-leading balance sheet, leaving us with little concern that they may face storms,” she writes. “The company remains a relatively good place to hide and also participates in a recovery, leading to a desire to leave capacity in the market compared to others.”
Baker is also bullish on Spirit, aiming for $ 20, and he sees a profit for American, aiming for $ 15. “American’s balance sheet is debt-ridden, but gives the company a sound basis of liquidity to handle the epidemic,” she writes.
UBS analyst Myles Walton remains unaffected with American, writing that the company “does not have much room to go over costs.” He sold one and aimed for $ 9. He also considers United Stocks to be relatively weak, lowering its 2020 earnings estimate by 20% and raising its loss estimates for 2021 and 2022. She recently held a neutral rating and $ 25 price target, down nearly 24% from prices around $ 33.
He is more optimistic about Southwest, repeating a $ 41 price target, writing that the company’s “overall cash flow picture has improved.”
Overall, expectations are settling for long periods of low revenue. Air traffic will not return to 2019 levels, unless the epidemic stops the winds with more effective treatments, wider distribution of a vaccine, or global herd immunity.
United told investors on earnings in a week that our best estimate is demand, measured as revenue, would decrease by about 50% over time and then distribute plateaus at that level.
Sufficient capital has been raised for the airlines, including grants and loans from the Treasury to survive – to survive. Cash burn rates vary and in some cases are increasing — but none of the imminent risks of insolvency are major carriers. All have cut operating costs and delayed capital expenditure plans for new aircraft.
And most carriers plan to reduce labor costs through furloughs, buyout packages or layoffs, cutting thousands of employees when payroll support expires under the CARS Act. (Southwest is an exception, stating that there would be no need to cut jobs because 17,000 workers had already taken a purchase or retirement package).
Further, the next few months will be turbulent for industry and stocks.
Write Daren Fonda at [email protected]