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4 Airline Stocks Recently Downgraded by Deutsche Bank

2020 has been extremely difficult year for Airline stocks due to pandemic-led travel restrictions and a general unwillingness by people to fly for fear of COVID-19 contagion. While the industry is expected to recover slightly in 2021 with the arrival of coronavirus vaccines, many industry participants may struggle to return to profitability in the foreseeable future. United Airlines Holdings, Inc. (UAL), JetBlue Airways Corporation (JBLU), Spirit Airlines, Inc. (SAVE), and Skywest, Inc. (SKYW) are four stocks that have been downgraded by Deutsche Bank, and for which there are questions regarding their future profitability. Let’s take a closer look at these names.

The airline industry has been one of the worst-hit since the onset of the COVID-19 pandemic. However, airline stocks saw a recent uptick due to positive news surrounding the availability of a coronavirus vaccine in the near term.

Although there has been an amount of bullishness for airline stocks in recent weeks, many carriers may struggle to operate profitably in the near term. Deutsche Bank recently downgraded its rating on the sector to hold. This because Deutsche Bank analyst Michael Linenberg believes that the stocks are trading currently at fair valuation considering two to three years of earnings growth. So, he believes there is not much upside left in airline stocks.

Airline companies such as United Airlines Holdings, Inc. (UAL), JetBlue Airways Corporation (JBLU), Spirit Airlines, Inc. (SAVE), and Skywest, Inc. (SKYW) are still trading at a significant discount to their pre-pandemic levels and a rebound for these companies is by no means certain. So, it may be prudent to avoid these companies for now.

United Airlines Holdings, Inc. (UAL)

UAL provides air transportation services. The company has operations in North America, Asia-Pacific, Latin America, Africa, Middle East, and Europe. UAL’s stock has lost 45.1% so far this year.

UAL has recently decided to stop charging flyers a change fee for international flights. This move could mean lower profitability for the company going forward.

For the quarter ended September 30, 2020, the company saw a decline in total operating revenues of 78% year-over-year. Its passenger revenue also decreased 84% from the same period last year.

UAL is estimated to see a fall in revenue of 46.3% for the quarter ended March 2021. The company’s EPS is expected to decrease 320.2% during 2020 and 23.1% per annum over the next five years.

UAL’s poor prospects are also apparent in its POWR Ratings, which assigned it a “Sell” rating. It also has a “F” for Buy & Hold Grade. It is ranked #19of 22 stocks in the Airlines industry.

JetBlue Airways Corporation (JBLU)

JBLU provides passenger air transportation services. The company has operations in the United States, Latin America, and the Caribbean. JBLU’s stock has declined 20.9% year-to-date.

The company recently announced that it will not be raising any employee salaries and has put paid parental leave on hold. This is an indicator of the difficult pandemic-driven times the company is facing currently.

For the quarter ended September 2020, the company saw a decline in revenue of 76% compared to the same period last year. During the quarter, the company reduced its capacity by 58% compared to an initial projection of at least 45%.

JBLU’s revenue is expected to decline 67% for the quarter ended December 2020 and 63.3% for fiscal 2020. The company’s EPS is estimated to fall 405.3% in 2020 and at a rate of 23% per annum over the next five years.

JBLU’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Neutral” with a “D” for Industry Rank. It is ranked #12 of 22 stocks in the Airlines industry.

Spirit Airlines, Inc. (SAVE)

SAVE provides low-cost airline services. The company has operations in the United States, Latin America, and the Caribbean. SAVE’s stock has declined 34.9% so far this year.

SAVE has recently warned investors that the rising number of coronavirus cases in the United States has caused a further slowdown in bookings and an increase in cancellations.

For the quarter ended September 30, 2020, the company saw a 33% decline in passengers compared to the same period last year. The company’s revenues were down 59.5% during the same period.

The company’s revenue for the quarter ended March 2021 is expected to decline 29.2%, and for fiscal 2020 it is expected to fall 51.9%. SAVE’s EPS is estimated to decline 262.5% in 2020 and at a rate of 48.8% per annum over the next five years.

SAVE’s poor prospects are also apparent in its POWR Ratings, which assigned it a “Neutral” rating. It has a “D” for Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #14 out of 22 stocks in the Airlines industry.

Skywest, Inc. (SKYW)

SKYW provides scheduled passenger and freight air transportation services. The company has operations in the United States, Mexico, Canada, and the Caribbean. SKYW’s stock price has fallen 33.5% so far this year.

SKYW recently announced a slate of leadership changes; the company’s chief operating officer has retired after almost 20 years with the company. It remains to be seen whether the new leadership structure can steer SKYW to business growth in these uncertain times.

For the quarter ended September 30, 2020, the company’s revenue saw a decline of approximately 40% compared to the same period last year. The total block hours were also down 41% compared to the third quarter in 2019.

SKYW’s revenue is expected to decline 26.3% in March 2021 and 30.4% in fiscal 2020. The company’s EPS is estimated to decline 169.5% for the quarter ended March 2021 and at a rate of 26.32% per annum over the next five years.

SKYW’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Neutral” with a “D” for Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #15 of 22 stocks in the Airlines industry.

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UAL shares were trading at $47.38 per share on Monday afternoon, down $0.98 (-2.03%). Year-to-date, UAL has declined -46.21%, versus a 15.64% rise in the benchmark S&P 500 index during the same period.



About the Author: Aaryaman Aashind

Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks.

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