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Citi analysts lowered earnings estimates for the Big Four U.S. airlines.
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It’s been a rough few months for airline stocks as fuel prices have surged and the peak summer season has come to an end. Citi analysts expect turbulence to continue into early 2024.
With that in mind, analysts led by Stephen Trent lowered earnings estimates and price targets for each of the so-called Big Four U.S. airlines—
Delta Air Lines
(ticker: DAL),
United Airlines Holdings
(UAL),
Southwest Airlines
(LUV), and
American Airlines Group
(AAL).
However, they still rate Delta and United stock at Buy, but rate Southwest and American shares at Neutral.
They wrote in a Wednesday research report that while the “mismatch” of high oil prices, major economies softening and dollar strength won’t remain on a long-term basis, it could persist into at least early 2024.
“Against this backdrop, Delta and United look strongest among the Big Four, owing to their international exposure and strong co-branded card spend,” the analysts wrote.
Delta’s new price target is $56, down from $64. United is at $84, down from $76. Southwest’s price target drops to $28.50 from $32.75, and American’s goes to $13 from $15.25.
Southwest, the analysts wrote, is overshadowed by its efforts to improve operations and a standoff with pilots over pay. American’s balance sheet and its higher capex expectations for next year are potential vulnerabilities.
Heading into earnings season, which begins next week with Delta, each carrier’s demand outlook is probably the most important factor to watch, they added. “Based on Citi’s estimates, Delta and United seem poised to retain the best demand trajectories among the Big Four,” the analysts wrote.
The
U.S. Global Jets
exchange-traded fund (JETS) has fallen 26% from its July peak. With a number of airlines cutting guidance ahead of the third-quarter earnings season, forecasts for the fourth quarter will be in the spotlight if any of the stocks are to mount a late-year revival.
Write to Callum Keown at [email protected]
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