Investors in airline stocks appear to be taking profits today. Shares of JetBlue Airways (NASDAQ:JBLU), United Airlines (NASDAQ:UAL), Delta Air Lines (NASDAQ:DAL), and American Airlines (NASDAQ:AAL) are all down significantly today.
In the famous words of The Joker, some might ask, “why so serious?”
After all, Deutsche Bank analyst Michael Linenberg noted a number of positives during his recent note last week, according to a recent Barron’s article.
Many investors have already taken note of such catalysts. Indeed, household net worth has climbed 10% year-over-year, pent-up demand in the travel segment appears to be near all-time highs, and U.S. flights have averaged 1.2 million passengers over the past week for the first time since the pandemic started.
However, as other analysts note, many airline stocks are already trading above pre-pandemic levels. The airline sector itself is up in excess of 30% this year on reopening expectations.
Are Investors in Airline Stocks Looking Too Far Ahead?
Yes, the stock market is forward-looking. Investors price in expectations of what tomorrow will bring, rather than the troubles of yesterday. However, some believe the growth expectations that are being priced in right now are simply too bullish.
Enter American Airlines stock. Some investors appear to be concerned that this stock is trading roughly 50% higher than the average analyst price target of $15.50 right now. Shares of AAL are down approximately 3.5% at the time of writing.
JetBlue is down more than 7% today. Indeed, this is a much steeper drop than its peers. It appears investors are concerned with the company’s proposed convertible debt issuance today. These senior notes, due 2026, are expected to allow for the airline to push out its near-dated debt and preserve its balance sheet for the time being. Whether investors really believed airlines would be able to weather the rest of the storm without taking on additional debt or equity is uncertain. However, it seems this news is not being taken lightly.
United Airlines and Delta Air are both down today as well. However, it appears these declines may be more of a sympathy trade for their peers.
I believe investors are correct in pricing in optimism into airline stocks today. However, the line between bullish and hysterical may becoming blurred right now. Accordingly, investors should expect some volatility on the horizon. The market is doing what it does best right now — price discovery.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.