JPMorgan downgrades United and JetBlue, says pace of comeback rally can't last 'much longer'

Published Wed, Jun 10 20207:05 AM EDTUpdated Wed, Jun 10 20208:21 AM EDT

(This story is for CNBC PRO subscribers only.) The run-up in red hot airline shares can't last, according to JPMorgan. The firm on Tuesday downgraded JetBlue to underweight from neutral and United Airlines to neutral from overweight, citing four reasons why the rally is likely to end. JPMorgan also lowered its revenue forecast for the major airlines for the second half. The rally in airline shares has been the talk of Wall Street. The U.S. Global Jets ETF , which contains all the major players, is up more than 80% from its pandemic low and is up 50% in the last one month alone. United is up 75% in the last month, while JetBlue is up 56%. Investors have been betting on consumers slowly returning to the skies and airlines adding flights to their summer schedules . "We do not believe the current pace of equity ascent can be potentially maintained for much longer," analyst Jamie Baker said in the note Tuesday. "First, TSA recovery rates are likely to moderate this fall as corporate demand inadequately backfills pent-up summer leisure travel. Second, valuation is beginning to stretch for some. Third, Treasury loan decisions are believed to be imminent, and may prove the last easily identifiable near-term catalyst, potentially followed by dilutive equity raises," Baker added. Baker has a December price target for JetBlue of $11 per share and $43 for United. JetBlue closed Tuesday at $14.21 and was down 6% in premarket trading Wednesday on the JPMorgan call. United closed Tuesday at $44.64 and was 4% lower in premarket trading. The analyst also cut his second-half forecast for the big three airlines, saying revenue will now be down 75% and 50% in the third and fourth quarters respectively, instead of the down 50% and down 25% that he originally estimated. JPMorgan is concerned airlines will trim schedules later this year when labor costs begin to add up. "Something has to give, in our view, and unless our 2021 forecasts are meaningfully insufficient or an effective vaccine is imminent, we fear what might ultimately give is the recen