4 Airline Stocks Feeling Heat from Wall Street

Alaska Air Group, Inc. (NYSE:ALK), American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL), and Spirit Airlines Incorporated (NASDAQ:SAVE) have been barraged with bearish brokerage notes

by Alex Eppstein

Published on Jun 14, 2016 at 9:26 AM

For a second straight day, airline stocks are feeling the heat from Wall Street. Specifically, downgrades and price-target cuts have hit a number of airline stocks, including Alaska Air Group, Inc. (NYSE:ALK), American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL), and Spirit Airlines Incorporated (NASDAQ:SAVE). Below, we'll take a closer look at the negative attention, its impact on the charts, and how the options market may be reacting.

Starting things off, ALK received a downgrade to "outperform" from "strong buy" at Raymond James, which also cut its price target to $88 from $105. This was followed by a $1 price-target reduction to $87 at Cowen. As such, the shares are off 0.5% in pre-market trading, after settling Monday at $64.29. To put the current perch in perspective, as recently as late April, ALK stock was flirting with the $82-$83 range.

As the stock has descended sharply, the options crowd has ramped up its bearish betting. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Alaska Air Group, Inc. has racked up a 10-day put/call volume ratio of 1.72 -- just 4 percentage points from a 12-month peak.

Turning to AAL, the stock was hit with a price-target reduction to $46 from $48 at Raymond James. Not surprisingly, the shares are down 0.2% in electronic trading. Longer term, the stock has shed one-quarter of its value in 2016, landing at $31.80 yesterday, and hit an annual low of $30.37 as recently as June 3. 

Yet, at the ISE, CBOE, and PHLX, traders have bought to open more than four calls for every put during the last 10 weeks. The resultant call/put volume ratio of 4.55 ranks in the bullishly skewed 87th annual percentile. From a contrarian perspective, a capitulation among these upbeat bettors could result in headwinds.

Next up is DAL, where Raymond James trimmed its price target to $58 from $62. Consequently, the stock has dipped 0.5% in electronic trading, after settling yesterday at $40.57. The shares have underperformed badly in 2016, giving up one-fifth of their value. Accordingly, option bears have pounced, as Delta Air Lines, Inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 0.93 sits just 2 percentage points from an annual high.

Last but not least is SAVE, which is bucking the pre-market headwinds, up 0.5% -- despite a $1 price-target cut to $59 at Raymond James. Unlike its sector peers, the stock is actually higher on a year-to-date basis, advancing a market-beating 11.2%, as of Monday's close at $44.30. As such, short-term options traders have been very call-skewed toward the stock. Spirit Airlines Incorporated's Schaeffer's put/call open interest ratio (SOIR) of 0.33 ranks in the low 3rd annual percentile, with calls tripling puts among options expiring in the next three months.

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