- Airline stocks are set to soar despite expectations of lower passenger demand over the next year, JPMorgan said in a note on Wednesday.
- Specifically, United Airlines and JetBlue could both jump nearly 50% from Tuesday’s close if the airline companies have enough cash to make it through the economic decline caused by the COVID-19 pandemic, JPMorgan said.
- JPMorgan upgraded both United Airlines and JetBlue to “overweight” with price targets of $52 and $17.
- Visit Business Insider’s homepage for more stories.
JPMorgan expects airline stocks to soar if they have enough cash to survive the COVID-19-related decline in passenger demand through 2021.
JPMorgan upgraded United Airlines and JetBlue to “overweight” and assigned price targets of $52 and $17, representing potential upside of 48% and 49% from Tuesday’s close.
“We do not believe demand trends are recovering at the pace envisioned by management,” JPMorgan said. That could result in airline companies reducing their cash burn even further as earnings season gets underway next week, the bank said.
Part of that reduced demand outlook is due to quarantine rules for arriving international passengers. A vaccine and a rapid COVID-19 testing protocol for all passengers before their flights could help boost demand for air travel, the bank said.
But despite the expectations for weaker air-travel demand and weak earnings reports, JPMorgan upgraded the airline stocks.
“While it may sound counterintuitive to be conducting a handful of upgrades on the cusp of an earnings season that may potentially prove disappointing from a cash-guidance perspective, we strive to let our models lead the way,” JPMorgan said.
JPMorgan said its valuation models pointed to increased liquidity that should be adequate for the survival of the airline companies.
“Our base case has been — and remains — that US airline bankruptcies are not a probable outcome of the current crisis despite worsening pressure on balance sheets,” JPMorgan said.
“Despite recent volatility in the space, we believe that UAL can endure the current downturn with sufficient liquidity,” JPMorgan said.
And for JetBlue, the bank said it continued “to believe that the company’s cost control will continue to be in focus following impact of COVID-19.”