Analysts See Clear Skies Ahead For These 2 Airline Stocks

Both LUV and UAL received price-target hikes to $74

Managing Editor
Jan 10, 2018 at 10:03 AM
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Two airline stocks are higher this morning, after analysts issued some lofty price-target hikes. Southwest Airlines Co (NYSE:LUV) received price-target hikes to $74 from both Raymond James and Barclays. Not to be left out, United Continental Holdings Inc (NYSE: UAL) also received a price-target hike to $74 from Cowen and Company, after the airline reported well-received December traffic metrics. 

Analysts See Record Highs On the Horizon for LUV Stock

The new price targets would represent a fresh record high for Southwest Airlines stock, which at last check was up 0.3% to trade at $62.58. LUV stock has tacked on 22% year-over-year, and ascended to a record high of $68.98 on Dec. 21, with the airline an expected benefactor of the new Republican tax plan. Yesterday, however, the stock dipped, as oil prices touched three-year highs and after Southwest reported December traffic.

Options traders haven't been deterred by the recent LUV pullback. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows an influx of calls bought to open during the past two weeks. Southwest Airlines stock's 10-day call/put volume ratio of 4.14 ranks in the 85th annual percentile, suggesting that calls have been bought to open over puts at a faster-than-usual pace in the past two weeks.

Plus, the stock's inflated Schaeffer's Volatility Scorecard (SVS) of 95 indicates the airline stock has handily exceeded options traders' volatility expectations in the past year -- a boon to would-be premium buyers.

UAL Stock Nudges Past $70 Level 

Cowen and Company's price-target hike stems from United Continental's monthly operational performance report, which showed increases in revenue passenger miles and available seat miles in December. As a result, UAL stock is up 4.6% to trade at $71.84 this morning. The shares are now on pace to topple the $70 level for the first time since July, and have tacked on 27% since falling to an annual low of $56.51 on Nov. 15.

In the options pits, United Continental stock sports a Schaeffer's put/call open interest ratio (SOIR) of 1.21, which ranks higher than 98% of all other readings from the past year. This indicates that short-term options traders have rarely been more put-heavy on UAL stock in the last 12 months. 

Echoing that, the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.68 is also in the 98th percentile of its annual range, pointing to accelerated put buying over call buying lately. Should UAL shares extend their recent journey higher, an unwinding of pessimism in the options pits could translate into added tailwinds.

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