Bank of America is promoting airline stocks based on stock market momentum, but warns that the industry remains vulnerable with valuations higher than pre-pandemic levels.

American Airlines and United Airlines at Los Angeles International Airport.


There is an uptrend in airline stocks, but investors should be warned that the industry remains vulnerable with many valuations above pre-pandemic levels, according to Bank of America.

In a Monday note, Andrew J. Deidora, a research analyst at Bank of America, raised price targets for airline stocks by an average of 15%, but emphasized that momentum, not value, was driving prices. higher price targets.

Deidora raised Jet blueAim between $ 16.5 and $ 19.5, citing low fuel prices, poor competitive supply, and a strong entertainment-oriented user base. Deidora also raised Alaska Air Group From $ 60 to $ 72, which is a 16 percent increase from Friday’s close, indicating “the airline’s strong liquidity position relative to its peers.”

The analyst believes that stocks, among other names, are trading higher on short-term stock market momentum as investors continue with industries hoping to rebound as the epidemic subsides. However, Deidora stressed that this is a case of “buyer beware,” as ratings can advance earlier than basics.

“While airline stocks have traded when they reopened since last fall, momentum continues to drive stocks in the short term, leading us to increase our price targets. But buyers are cautioning, as we see risks to fundamentals in the recovery at a time when most airlines have them. Institutional values ​​higher than before the epidemic “.

“As the market encourages airline actions to bring about a recovery in demand, we see risks developing that lead us to believe that earnings will follow revenue and revenue will reduce demand,” he added.

Deidora said rising jet fuel prices and falling demand continued to generate profits. Furthermore, airline bookings remain relatively quiet; Sales were down 81% year-over-year for the week ending February 14.

The analyst has a buy rating for Air Canada, Alaska Air Group, JetBlue Airways, Mesa Air Group and Southwest. It also has an underperforming rating for American Airlines, Hawaiian Holdings, Royal Caribbean, and United Airlines.

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