Lehman upgrades US Airways

TheNewLowFare

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Aug 31, 2005
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Lehman upgrades US Airways, UAL
Analyst cites valuation; AMR Corp. stock downgraded


SAN FRANCISCO (MarketWatch) -- An upgrade by Lehman Bros., keying on prospects for easing jet fuel prices, improving revenue and weakened share prices, helped send the stocks of US Airways Group and UAL Corp. higher Monday.
"Recent price action in airline shares has created some price disparities that we believe investors should exploit," wrote Lehman's Gary Chase in a research note.
Lehman also downgraded AMR Corp. (AMR :
AMR Corporation
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Last: 24.18-0.78-3.12%
2:29pm 02/13/2006
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AMR24.18, -0.78, -3.1% ) , the parent of American Airlines, to equal weight from overweight, citing the stock's valuation. See the latest upgrades and downgrades.
AMR's stock fell 2.1% to $24.44 on Monday but is up 12% this year.
Lehman upgraded US Airways (LCC :
u s airways group inc com
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LCC31.14, +1.14, +3.8% ) to overweight from equal weight and assigned a $40 price target, up $2 from previously.
"Given the combination of recent share price weakness, especially in relative context, and slightly increased revenue assumptions, we see improvement in the risk-reward equation for LCC," wrote Lehman analyst Gary Chase.
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On Monday, US Airways stock rose 4.2% to $31.25 and is down 19% so far this year.
Meanwhile, UAL's rating also was raised to overweight from equal weight.
The parent of United Airlines (UAUA :
ual corp com new
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2:34pm 02/13/2006
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UAUA35.10, +0.86, +2.5% ) , which emerged from bankruptcy Feb. 1, saw its shares gained 3.5% to $35.42. They're down from a $40 open Feb. 2 on the Nasdaq.
"No change to target price or basic fundamental assumptions, but share price weakness has materially improved the risk-reward tradeoff in the shares," wrote Lehman's Chase.
Also Monday, Bear Stearns cited valuation in upgrading UAL to peer perform from underperform.
For 2006, Lehman forecasts a $66-a-barrel price for crude oil, which will mean better airline financial results by year end.
In the first quarter, however, higher spending on jet fuel will worsen airlines' per-share results.
Among the companies covered, for US Airways that now means a breakeven first quarter on a per-share basis, not a 7-cent profit, according to the Lehman estimates, but a profit of $3.96 a share for the year, up from a prior earnings target of $2.70 a share.
For AMR, Lehman expects a loss of 90 cents a share in the first quarter, wider than the 50-cent previous estimate. The profit for the year is forecast at $2.60 a share now, up from $1.90 a share.
UAL's loss estimate from Lehman is now $1.90 a share in the first quarter, wider than the earlier $1.40-a-share estimate. The 2006 earnings target at Lehman for the company is now $5.55 a share, up from $4.85.
Lehman's Chase also lowered the price target on shares of Alaska Air Group (ALK :
Alaska Air Group, Inc.
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ALK31.57, -0.18, -0.6% ) to $32, down $6. The firm now expects the company to lose 55 cents a share, not 45 cents, in the first quarter but to earn $3.20 a share for the year, up from $2.85 a share previously. End of Story
August Cole is an editor for MarketWatch in San Francisco.