TD Cowen Names Top Airline Stocks Amid Rising Fuel Costs

TD Cowen lowered earnings estimates across major U.S. airlines due to higher jet fuel prices while keeping a constructive stance on fundamentals. United Airlines (UAL) remains its top pick with a Buy rating; its price target was cut to $192 (~13.0x 2027 EPS) despite UAL reporting Q2 adj. EPS of $1.99 and raising the lower end of 2026 guidance. Delta Air Lines (DAL) also stays a Buy with a reduced $105 price target (~14.0x 2027 EPS) as Cowen highlights balance-sheet strength and resilient demand, only partially offset by fuel headwinds.

Analysis

Higher jet fuel is a near-term margin tax, but the more important signal is dispersion: the carriers with diversified mix and balance sheet flexibility can absorb it, while leisure-heavy, discount-dependent names will have to choose between yield and load factor. That widens the gap between UAL/DAL and the rest of the domestic pack over the next 1-3 months, especially if corporate travel remains firm and premium cabins stay full.

The second-order effect is on valuation, not just EPS. Airlines trading on "quality" can hold multiples if investors believe they can earn through the cycle; if not, fuel inflation forces the market to haircut forward estimates faster than management can offset with fares. UAL’s path to investment grade matters here because it would lower financing friction and tighten spreads, but that’s a 6-18 month story and depends on capex discipline plus stable fuel.

Contrarian take: the consensus may be too focused on demand resilience and underestimating how quickly leisure elasticity shows up once fares and fees rise together. If consumer spending softens, the industry can look fine on load factors while still missing earnings because pricing power is weakest in the exact channels most exposed to fuel. The Delta/DKNG partnership is more loyalty engagement than earnings leverage; treat it as an incremental retention tool, not a fundamental catalyst.

Key Decisions for Investors

• Long UAL vs short AAL or JETS for a 1-3 month relative-value trade: UAL’s premium/international mix should better absorb fuel inflation; stop if fare data or fall booking commentary turns sharply negative.
• Accumulate DAL only on 3-5% pullbacks; it has the best balance-sheet cushion in the group, but the upside case only works if jet fuel stabilizes over the next quarter.
• Set a watch item on UAL credit spreads and rating-agency commentary over 6-12 months: an investment-grade upgrade would be a real multiple catalyst; if spreads widen again, the thesis is delayed.
• Avoid chasing DKNG on the Delta partnership headline; it is a customer-engagement feature, not a material revenue driver. Best viewed as a small positive for retention, not a standalone position.