|Airlines in broad selloff; Wolfe Research sees cloudy skies ahead for sector|
Dec. 7, 2018 3:29 PM ET|About: American Airlines Group (AAL)|By: Carl Surran, SA News Editor
Airline stocks are plunging, with the sector on track to suffer its biggest one-day loss since February 2016, slammed by the recent weakness in oil prices and concerns over a slowing economy.
Wolfe Research downgrades the airline sector to Underweight from Overweight, saying that while a recession and lower oil are both "toxic" for air carriers, "we trust airlines to react better to a recession than we trust them not to behave poorly with lower oil prices."
While the airlines have made changes to better position themselves in downturns, the industry’s poor track record looms large, Wolfe's Hunter Keay says, adding that while investors can hope that the next recession will allow carriers to prove they’ve learned lessons, the best place to watch is from the sidelines.
Among individual names, Keay cuts American Airlines ( AAL -9%), Hawaiian Holdings ( HA -9.4%) and Spirit Airlines ( SAVE -8.3%) to Peer Perform from Outperform, and JetBlue ( JBLU -5.6%) and WestJet ( OTC:WJAFF -3%) to Underperform from Peer Perform.
But Keay reiterates his Outperform rating on Delta Air Lines ( DAL -3.8%) and upgrades Southwest Airlines ( LUV -4.1%) to Outperform from Peer Perform; he likes DAL’s variable cost structure and strong balance sheet and margins, and he thinks LUV's track record means the stock is one of the better airlines to invest in during a downturn.