JPMorgan upgrades United and American airlines shares, sees near 50% upside ahead for one

Published Fri, Apr 22 20226:06 AM EDTUpdated Fri, Apr 22 20228:49 AM EDT

There's still room for United Airlines and American Airlines to rally further, even after stellar forward guidance from the two companies have sent the shares higher, according to JPMorgan. The firm on Friday upgraded both airline stocks. JPMorgan raised its rating on American to underweight from neutral and hiked United's rating to overweight from neutral. The call came after United and American both reported quarterly results this week. United on Wednesday said it expects to turn a profit in 2022 for the first time since the pandemic began. American on Thursday forecast a second-quarter pretax profit and said it expects to fly as much as 94% of its 2019 second-quarter schedule. United is 16.2% higher and American is up 12.6% in 2022. The two airline stocks are each more than 60% off their lows notched in early March. "Fortunately for investors, in our view, is the fact that equities have bounced but not yet sufficiently rallied," analyst Jamie Baker said. JPMorgan has a December 2022 price target of $26 on American, implying 28.6% upside from Thursday's close. The firm's $76 projection on United is 49.5% higher than where it closed Thursday. Even though airfares are higher than the bargains seen in the depths of the Covid pandemic, JPMorgan said demand should remain favorable when considering how much the economy has grown since 2019. The estimated gross domestic product for the fourth quarter of this year is about 18% larger than three years prior, according to JPMorgan. Thus, the firm estimates at least $60 billion in revenue is still missing from the airline industry in a normalized world. "The relationship between revenue and nominal GDP implies we are nowhere near the point of demand destruction as fares rise, particularly when one considers Thursday's bullish corporate commentary," Baker said. Although the airlines are dealing with elevated fuel costs and the war in Ukraine, JPMorgan still sees the recovery continuing from here. "Aside from fuel and geopolitical pressures, almost every fundamental input is stronger than last year (supply, demand, COVID, you name it)," Baker said. Both shares gained about 1% in premarket trading following the JPMorgan call. —CNBC's Michael Bloom contributed reporting.

United Airlines planes are seen at Newark International Airport in New Jersey, on September 29, 2021.

Tayfun Coskun | Anadolu Agency | Getty Images

There's still room for United Airlines and American Airlines to rally further, even after stellar forward guidance from the two companies have sent the shares higher, according to JPMorgan.