J.P. Morgan sees 2006 profit at Continental, AMR
SAN FRANCISCO (AFX) -- With so much pessimism in the airline industry, investors may be overlooking improving prospects at AMR Corp., Continental Airlines and elsewhere in the rattled sector, J.P. Morgan analysts said Tuesday.
"We feel better about the broader sector's risk-reward profile than at any prior time this decade," wrote J.P. Morgan analyst Jamie Baker.
Despite more red ink expected in the fourth quarter at American Airlines' parent AMR Corp. and Continental Airlines, J.P. Morgan upgraded shares of the carriers because of expected profit next year as capacity shrinks and revenue rises.
"Despite improved prospects and a hasty retreat in jet [kerosene] prices, AMR/CAL shares are still below pre-Katrina levels," wrote Baker.
He now rates AMR and Continental at overweight, according to a Tuesday note. A profit of $1.60 a share is expected in 2006 at AMR, not the 50-cent loss estimate that had been forecast by Baker.
At Continental, his 2006 profit forecast for the company is now $1.15 a share, instead of a loss of 90 cents.
At the same time, analyst Jamie Baker reduced the ratings on Southwest Airlines and AirTran Holdings because of the upgrade of the two other airlines.
"While our desire for a balanced ratings spectrum regrettably pushes AirTran and Southwest down a notch, our enthusiasm for these names (particularly the latter) is not reduced in absolute," he wrote.
Baker expects higher 2006 earnings at Southwest and AirTran, as well as Alaska Air Group and JetBlue Airways .
Revenue for the industry is expected to increase in the fourth quarter -- as capacity comes down -- and will rise further in 2006.
"Perhaps the sell-side community (until today including ourselves) has simply become too gun-shy given a litany of unexpected, nasty surprises; 9/11, the Gulf War, SARS and most recently, surging crude," Baker wrote.
The upgrade of Continental and AMR comes as rivals United Airlines , Northwest Airlines and Delta Air Lines are now restructuring in bankruptcy and even low-cost carrier JetBlue is fighting hard to make a profit.
In the recently reported third quarter, Continental was profitable but forecast a loss in the fourth quarter because of the financial burden of rising jet fuel prices.
AMR Corp. lost money during the third quarter, and expects a loss in the fourth quarter.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
SAN FRANCISCO (AFX) -- With so much pessimism in the airline industry, investors may be overlooking improving prospects at AMR Corp., Continental Airlines and elsewhere in the rattled sector, J.P. Morgan analysts said Tuesday.
"We feel better about the broader sector's risk-reward profile than at any prior time this decade," wrote J.P. Morgan analyst Jamie Baker.
Despite more red ink expected in the fourth quarter at American Airlines' parent AMR Corp. and Continental Airlines, J.P. Morgan upgraded shares of the carriers because of expected profit next year as capacity shrinks and revenue rises.
"Despite improved prospects and a hasty retreat in jet [kerosene] prices, AMR/CAL shares are still below pre-Katrina levels," wrote Baker.
He now rates AMR and Continental at overweight, according to a Tuesday note. A profit of $1.60 a share is expected in 2006 at AMR, not the 50-cent loss estimate that had been forecast by Baker.
At Continental, his 2006 profit forecast for the company is now $1.15 a share, instead of a loss of 90 cents.
At the same time, analyst Jamie Baker reduced the ratings on Southwest Airlines and AirTran Holdings because of the upgrade of the two other airlines.
"While our desire for a balanced ratings spectrum regrettably pushes AirTran and Southwest down a notch, our enthusiasm for these names (particularly the latter) is not reduced in absolute," he wrote.
Baker expects higher 2006 earnings at Southwest and AirTran, as well as Alaska Air Group and JetBlue Airways .
Revenue for the industry is expected to increase in the fourth quarter -- as capacity comes down -- and will rise further in 2006.
"Perhaps the sell-side community (until today including ourselves) has simply become too gun-shy given a litany of unexpected, nasty surprises; 9/11, the Gulf War, SARS and most recently, surging crude," Baker wrote.
The upgrade of Continental and AMR comes as rivals United Airlines , Northwest Airlines and Delta Air Lines are now restructuring in bankruptcy and even low-cost carrier JetBlue is fighting hard to make a profit.
In the recently reported third quarter, Continental was profitable but forecast a loss in the fourth quarter because of the financial burden of rising jet fuel prices.
AMR Corp. lost money during the third quarter, and expects a loss in the fourth quarter.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
