JP Morgan analyst Jamie Baker is now forecasting a mild recession and pricing it into estimates for airline stocks. But that doesn’t make Baker bearish: in fact, the analyst thinks it’s time to buy the stocks.
“We know what stocks have done in the past. Fundamentals lag, but airline equities have done an admirable job at anticipating recessions. Airline stocks have consistently shed about 40% going into recessions back to 1980, with the exception of 2009 when airline stocks shed 65%, then rallied from there. From this perspective, the �good� news is that stocks have declined 40% from their recent highs.”
Baker sees 0.5% revenue growth in 2012, down from a 10% run rate in 2011. But other than for American-Airlines-parent AMR (AMR), Baker’s estimates for most airlines have not changed dramatically. AMR’s margins could deteriorate considerably in 2012, Baker writes, and revenue could fall 9.6% from 2011.
“Given a starting point of current loss production, our AMR 2012 estimate is materially worsened. But for others, changes are fairly mild, and we continue to emerge ahead of consensus for Legacies, slightly below for Jet Blue (JBLU) and Southwest (LUV).”
Baker’s Overweight-rated stocks include: Delta (DAL), United Continental (UAL) US Airways (LCC) and JetBlue.
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