Raymond James upgrades Alaska Air, cuts American Airlines on valuation concerns

Raymond James upgraded Alaska Air Group (ALK) to Outperform with a $70 price target, citing attractive risk-reward, favorable competitive trends, and increased conviction in earnings forecasts, while downgrading American Airlines (AAL) to Market Perform due to a more balanced risk-reward profile. The firm highlighted ALK's strategic positioning to benefit from Spirit Airlines' significant financial struggles and ongoing liquidity pressures. This assessment comes amid consistent U.S. travel demand stabilization and recovery in both leisure and corporate segments since early summer.

Analysis

Raymond James has adjusted its ratings on two major carriers, upgrading Alaska Air Group (ALK) to Outperform with a $70 price target, while downgrading American Airlines (AAL) to Market Perform. The upgrade for ALK is underpinned by a confluence of positive factors, including what the firm now views as a more attractive risk-reward profile and increased conviction in its earnings forecasts. This confidence stems from favorable competitive capacity trends, specifically ALK's position as a primary beneficiary of Spirit Airlines' significant financial distress. Raymond James notes that ALK is poised to gain from Spirit's struggles into late 2025, further bolstered by a reduction in its own route exposure to low-cost carriers like Spirit and Frontier. Conversely, the downgrade of AAL is a valuation-driven call, with the stock approaching its prior $14 price target, suggesting a more balanced risk-reward outlook. The analysis is set against a backdrop of stabilizing U.S. travel demand since April, with a recovery in both leisure and corporate segments gaining momentum since early summer. The precarious situation at Spirit Airlines, which has issued a "going concern" warning and faces liquidity pressures that could become critical by early December, is a key industry dynamic influencing these ratings.

Key Decisions for Investors

• Investors could view the Alaska Air (ALK) upgrade to 'Outperform' and $70 price target as a rationale to assess long positions, given its enhanced competitive standing due to Spirit Airlines' financial struggles.
• The downgrade of American Airlines (AAL) to 'Market Perform' is based on valuation, suggesting that investors holding the stock should consider its approach to the $14 price level as a point to re-evaluate risk-reward, rather than a signal of fundamental deterioration.
• Closely monitor developments surrounding Spirit Airlines' liquidity and any commentary from upcoming September industry conferences, as these are critical near-term catalysts that will provide insight into post-summer business demand and the evolving competitive landscape.