United Airlines and JetBlue will soar nearly 50% on upgraded outlooks for ample cash through 2022, JPMorgan says

United Airlines Embraer E175
  • Airline stocks are set to soar despite estimates of lower passenger demand over the next year, JPMorgan said in a note on Wednesday.
  • Specifically, United Airlines and JetBlue could both jump nearly 50% from Tuesday’s close as the airline companies have enough cash to make it through the economic decline caused by COVID-19.
  • JPMorgan upgraded both United Airlines and JetBlue to “overweight” with a price target of $52 and $17, respectively. 
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Despite an expected decline in passenger airline demand through 2021, JPMorgan expects airline stocks to soar given that they have enough cash to survive the COVID-19 related decline in travel.

That’s according to a Wednesday note published by the bank, in which it detailed why United Airlines and JetBlue are set to rally nearly 50%.

In the note, JPMorgan upgraded United Airlines and JetBlue to “overweight” and assigned $52 and $17 price targets, representing potential upside of 48% and 49% from Tuesday’s close, respectively.

“We do not believe demand trends are recovering at the pace envisioned by management,” JPMorgan said.

That could result in airline companies reducing their cash burn even further as earnings season gets underway next week, according to the bank.

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Part of that reduced demand outlook is in part due to continued two-week quarantine rules for arriving international passengers. A vaccine and rapid COVID-19 testing protocol for all passengers pre-departure of all flights could help boost demand for air travel, according to the bank.

Despite the weaker-than-expected air traffic demand and expected weak earnings reports next week, JPMorgan is still upgrading the airline stocks.

“While it may sound counterintuitive to be conducting a handful of upgrades on the cusp of an earnings season that may potentially prove disappointing from a cash-guidance perspective, we strive to let our models lead the way,” JPMorgan said.

JPMorgan’s valuation models point to increased liquidity that should be mostly adequate in terms of survival for the airline companies.

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“Our base case has been – and remains – that US airline bankruptcies are not a probable outcome of the current crisis despite worsening pressure on balance sheets,” JPMorgan said.

And with an estimated surge in 2022 demand for airline travel, assuming COVID-19 is an afterthought by then and pent-up demand from consumers materializes into to a surge in travel, JPMorgan sees “attractive upside potential over the next year” in United Airlines, and JetBlue, as well as Delta Air Lines and Alaska Air Group.

For United Airlines, JPMorgan said, “Despite recent volatility in the space, we believe that UAL can endure the current downturn with sufficient liquidity.”

And for JetBlue, the bank said, “We continue to believe that the company’s cost control will continue to be in focus following impact of COVID-19.”

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