Avery Schumer
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Avery Schumer in Sector Report,

Learn JPMorgan's Counterintuitive Take on Airline Stocks

Q1 numbers for leading U.S. airlines came in on the low end of the expected range, but the results may end up having an unexpected impact on airline stocks. According to JPMorgan analyst Jamie Baker, the weak results were not bad enough to justify the recent selloff in airline stocks.

“Given the absence of any bona fide ‘misses,’ diminished investor expectations may actually yield modest equity relief in the near term, given the potential for incremental capacity cuts and ‘less bad’ RASM commentary as earnings season soon gets under way,” Baker explained.

Despite a lower Q1 PRASM guidance range of -7.0 percent to -8.0 percent issued on Monday, JPMorgan raised its Q1 EPS estimate for Overweight-rated American Airlines Group Inc AAL from $1.17 to $1.20.

The firm also raised its EPS outlook for Overweight-rated United Continental Holdings Inc UAL from $1.04 to $1.18 following the company’s investor update last Friday that narrowed its Q1 PRASM guide range to between -7.25 percent and -7.75 percent.

Finally, JPMorgan upped its EPS estimate for Overweight-rated Delta Air Lines, Inc. DAL from $1.26 to $1.32 after the company said last week that its Q1 PRASM would likely come in at the lower end of its previous guidance range of between -2.5 percent and -4.5 percent.