United, JetBlue have 40% upside ahead, JPMorgan says in upgrade to overweight

Published Wed, Oct 7 20207:56 AM EDTUpdated Wed, Oct 7 20209:41 AM EDT

(This story is for CNBC PRO subscribers only.) Airline stocks have been among the hardest hit by Covid-19 as travel continues to stay at depressed levels, but JPMorgan believes some companies are better equipped than others to weather the storm. On Wednesday the firm upgraded United Airlines to overweight from neutral, while double upgrading JetBlue to overweight from underweight. Shares of United and JetBlue are down 60% and 38% this year, respectively. When it comes to United, JPMorgan's Jamie Baker said the company "can endure the current downturn with sufficient liquidity." The firm's new December 2021 price target is $52, which represents a 49% upside from Tuesday's closing price. The target "reflects UAL's turnaround momentum heading into the crisis and its inherent guidance conservatism, which has historically reduced risk of earnings misses," JPMorgan added. For JetBlue, the firm believes the airline will continue to prioritize cost control measures. The December 2021 target of $17 is about 47% above where shares closed on Tuesday. On the flip side, JPMorgan downgraded shares of Southwest from neutral to underweight. The airline industry has been thrust to the forefront of the ongoing stimulus discussions after American Airlines, United and other U.S. carriers began furloughing more than 32,000 workers last week . Under the terms of the $25 billion in federal payroll support passed in March, the industry agreed not to cut any jobs until Oct. 1. As Democrats and Republicans remain divided over key provisions for a new stimulus package, President Donald Trump on Tuesday night called for billions in support for the airlines. "The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support," he tweeted. Despite upgrading United and JetBlue, Baker noted that he is not optimistic on the industry's fundamentals broadly. "While we wouldn't extrapolate these changes to mean a renewed bullishness for 2021 fundamentals (quite the opposite, in fact), our 2022 recovery forecasts do portend upside potential in excess of 40% for our Overweight-rated names," he said. United was about 4% higher during premarket trading on Wednesday, while JetBlue advanced roughly 5%. - CNBC's Michael Bloom and Leslie Josephs contributed reporting.

A United Airline and a JetBlue airliner are seen in El Dorado International Airport in Bogota, Colombia.

Thierry Monasse | Corbis | Getty Images

(This story is for CNBC PRO subscribers only.)

Airline stocks have been among the hardest hit by Covid-19 as travel continues to stay at depressed levels, but JPMorgan believes some companies are better equipped than others to weather the storm. On Wednesday the firm upgraded United Airlines to overweight from neutral, while double upgrading JetBlue to overweight from underweight.