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Sell American Airlines on rising oil: Merrill

Kevin Lamarque | Reuters

Investors should avoid American Airlines because of increased earnings risk from climbing oil prices, according to Bank of America Merrill Lynch, which downgraded shares of the carrier to underperform from neutral.

"A revenue environment that is not improving during a time of rising oil prices leaves the balance sheet strategy of AAL a bigger risk than three months ago," BofAML's Andrew Didora wrote in a note to clients Thursday.

He added, "AAL has the highest leverage, most earnings volatility and trades at a premium ... valuation."