3 Airline Stocks Downgraded on Trade War Risk

Sinking AAL stock could get hit with more bear notes

Jul 3, 2018 at 10:24 AM
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It's a busy time for travel. While several leisure stocks tend to outperform in July, Deutsche Bank sees turbulence ahead for American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL), and United Continental Holdings Inc (NYSE:UAL), downgrading the trio of airline names to "hold" from "buy," while citing risks surrounding the U.S.-China trade dispute.

American Airlines Stock at Risk for More Downgrades

The brokerage firm also slashed its price target on American Airlines stock by $17 to $43, though this still represents expected upside of 14% to last night's close. This morning, AAL stock is down 2.4% to trade at $37.43, earlier hitting a new 20-month low of $36.76.

Longer term, AAL shares are down 28% year-to-date, and there's plenty of room for more bearish brokerage notes, considering the vast majority of covering analysts maintain a "buy" or better rating, with not one "sell" on the books. Plus, the average 12-month price target of $56.41 is a stiff 50% premium to current levels.

Short Sellers Pounce on Struggling Delta Air Lines Stock

Delta Air Lines stock saw its price target cut to $53 from $64 at Deutsche Bank. This is overshadowing the company's in-line reading on June capacity growth, with DAL shares down 1.6% at $49.12.

It's already been a tough year for the stock, which has struggled to surpass the $56-$58 region -- home to its late-January bear gap. Since an unsuccessful test of the lower end of this range in mid-June, DAL stock has shed 12.2%.

Short sellers have been increasing their exposure to the stock recently, which may have exacerbated Delta Air Lines' technical troubles. Short interest surged 25.2% in the most recent reporting period to 3.4 million shares. This accounts for just 3.2% of the equity's available float, though, meaning there's plenty of room on the bearish bandwagon.

United Continental Options Traders Target Technical Support

Deutsche Bank lowered its price target on United Continental stock to $74 from $81, but noted it's the best out of the three. While the shares are down 1.1% this morning to trade at $70.11, they remain 4.7% higher year-to-date, and appear to be finding a foothold atop their 80-day moving average. This trendline caught an early June retreat, and served as a floor in the latter half of the first quarter.

A number of options traders are betting on this level to hold as support over the next several months. The September 70 put has seen the biggest increase in open interest over the past 10 days, and data from Trade-Alert indicates mostly sell-to-open activity here.

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