Three Airlines Look “Oversold and Ripe to Buy”: Dahlman Rose

By Avi Salzman

Dahlman Rose analyst Helane Becker upgraded three airlines this morning after stocks in the industry fell 16% last month and 8% just last week. Becker raised Delta (DAL), United Continental (UAL) and Alaska Airlines (ALK) to Buy from Hold, and also boosted JetBlue (JBLU) to Hold from Sell, as capacity cuts in the industry should help improve profitability at the airlines going forward.

“We believe the airlines may exceed scaled-down expectations in 2H11 given the planned capacity cuts,” Becker writes.

Delta and United should also be able to shore up their balance sheets in the next couple of years.

“Delta Air Lines and United Continental stated they plan to use free cash flow over the next two years to pay down debt. Both companies target $10 billion in net debt. We believe both are likely to achieve this by 2013, although Delta has been more aggressive in marketing this as a goal. As Delta and United pay down debt, interest expense will decline improving the bottom line.”

But AMR (AMR), the parent of American Airlines, could see more troubles ahead, and Becker dropped her price target on the stock to $3.75 from $4.50.

Delta rose 2.7% in early trading. United was up 1.1%, Alaska Airlines rose 1.4% and JetBlue was up 1.5%.