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Goldman Sachs analysts said Wednesday they remain “positive on the path to profitability” for U.S. airlines, but profits are likely to be slower to return amid rising fuel prices and worse revenue than they expected.
The analysts, led by Catherine O’Brien, reduced their late 2021 and 2022 expectations for the industry, and downgraded their ratings on the shares of Jet Blue Airways Corp.
JBLU,
and American Airlines Group Inc.
AAL,
Goldman downgraded JetBlue stock to the equivalent of hold from buy, “as we expect cost headwinds associated with its American partnership to outstrip the revenue benefits in a weaker industry pricing environment,” a reason for a “slower return to profitability.”
The analysts set a $17 price target on the stock, implying a 5% upside from Wednesday’s prices.
American Airlines stock got a downgrade to sell from the equivalent of hold. The shares are expected to underperform as the company’s “relatively higher operating leverage weighs on its profitability recovery,” the analysts said. They set a price target of $18 on the stock, a downside of around 16%.
The analysts pinned the broader industry’s slower recovery to in part less air business travel.
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That combined with the higher jet-fuel prices and rising expenses and costs drove Goldman to cut its fourth-quarter outlook on the industry to a collective adjusted net loss of $1.5 billion, from a $350 million profit previously expected.
The Goldman analysts said they forecast an 18% drop in adjusted net income to $8.1 billion in 2022.
“While we are cutting our near-term forecast, we remain positive on the industry despite these pressures,” the analysts said. The industry is likely to see margins recover to 2019 levels by 2023 and improve in 2024 and 2025.
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“We view 2022 as a recovery year and expect investors will be focused on steady state earnings in 2023 and beyond,” they said. Goldman kept its buy rating on the shares of Alaska Air Group Inc.
ALK,
SkyWest Inc.
SKYW,
Southwest Airlines Co.
LUV,
Sun Country Airlines Holdings Inc.
SNCY,
and United Airlines Holdings Inc.
UAL,
