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Msg  10 of 13  at  8/23/2007 12:45:24 PM  by

denis_cowley


Morgan Stanley airline analyst William Greene expects airline stocks to outperform the broad market

AP
Sector Snap: Airlines Rise
Thursday August 23, 12:33 pm ET
Airline Stocks Rise As Analyst Forecasts Upside to Legacy Stocks, Labor Day Traffic Outlook

NEW YORK (AP) -- Airline stocks rose in Thursday midday trading despite higher oil prices, as a Morgan Stanley analyst forecast upside to legacy airlines and an industry group predicted a rise in Labor Day weekend air travelers.

The Amex Airline Index rose 0.15 of a point to 47.25. The index has risen about 8 percent this week on news of a new chief executive at Delta Air Lines Inc. and analyst reports that called airline stocks undervalued.

The gains came even as light, sweet crude for September delivery rose 37 cents to $69.63 per barrel on the New York Mercantile Exchange, though the contract fell to an eight-week low in its previous trading session. Fuel is one of the airline industry's biggest costs.

Morgan Stanley airline analyst William Greene expects airline stocks to outperform the broad market over the next 12 to 18 months due to a combination of factors -- low fuel prices, better revenue, tightened capacity and attractive share prices.

"After a long, downward trend, we believe investors now have an interesting opportunity in airline stocks," Greene wrote in a note on Thursday. He said legacy airlines are attractive at current levels and called Delta and Northwest Airlines Corp. his "top picks."

The Air Transport Association's forecast for a 2.6 percent increase in passengers for the upcoming U.S. holiday allayed some worries about demand, after the industry posted record delays this summer.

Nearly a third of domestic flights on major U.S. airlines were late in June, according to the Department of Transportation -- the worst performance since data was first collected in 1995.

Greene said Northwest's recent weak operational performance is expected to turn around and is already reflected in the company's "cheap" share price. He rates Northwest at "Overweight" with a $27 to $28 price target.

He also reiterated his Aug. 7 downgrade of JetBlue Airways Corp. shares to "Underweight" from "Equal-Weight" and said the company will face a difficult revenue environment as discount competitor Virgin Airways taps into its hubs.

Northwest shares fell 4 cents to $18.32 in morning trading; JetBlue shares fell 11 cents to $9.50; Delta fell 3 cents to $18.07.

Shares of Continental Airlines Inc. led the morning's gains with a rise of 80 cents, or 2.5 percent, to $32.37. Mesa Air Group Inc. rose 8 cents to $6.07; Frontier Airlines Holdings Inc. rose 5 cents to $6.04; and American Airlines parent AMR Corp. rose 8 cents to $24.96.

 



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