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American Airlines stock gains on Morgan Stanley upgrade, ‘decent’ holiday season - MarketWatchMarketWatch Site Logo

American Airlines Group Inc. stock gained altitude on Monday after the carrier drew an upgrade from Morgan Stanley as part of the investment bank’s fourth-quarter earnings outlook for the sector.

American Airlines AAL, -1.16% was up about 6% in midday trading, with the carrier also avoiding having to ground any planes since it does not have any Boeing BA, -0.34% 737 Max 9 jets in its fleet. Alaska Airlines and United Airlines grounded all of their 737 Max 9 planes on Sunday after a fuselage panel blew out midair during an Alaska Airlines flight.

Also read: Which airlines fly the 737 Max 9?

Also read: Why Spirit AeroSystems’ stock is falling on the 737 Max 9 news

American Airlines stock is on pace for its largest one-day percent increase since January 12, 2023, when it rose 9.71%, according to Dow Jones Market Data.

The stock has been up now for three consecutive trading days, for a total gain of about 11.4% over this period.

Morgan Stanley analyst Ravi Shanker upgraded American to overweight from equal-weight after a “decent holiday season” for carriers as well as a sharp drop in fuel costs.

American Airlines is preparing its first investor day in many years, after managing to whittle down its average weekly cancellations to about 0.2% of scheduled flights during the fourth quarter.

“Management will be looking to give the Street reasons to buy what may soon be the cleanest story in U.S. airlines,” Shanker said. “We have also been encouraged by AAL’s operational resiliency over the past quarter.”

Morgan Stanley is more bullish than other analysts on earnings projections for American Airlines because “AAL’s operations have been very strong the past few weeks,” Shanker said.

The airline’s “strong” operating performance will help contain costs, though it still faces inflation on labor and other items.

Separately, Morgan Stanley also downgraded Frontier Group Holdings ULCC, +0.41% to equal-weight from overweight and cut its price target for Southwest Airlines Co. LUV, -1.33% to $40 from $47 a share.

Morgan Stanley also reiterated Delta Airlines Inc. DAL, -0.58% as its top pick in the sector.

While demand was resilient across the sector during the quarter, traditional domestic destinations faced tough competition from international routes.

Overall, however, airlines might not “fondly reminisce” about the past year, he said.

Headwinds included competition from newly opened international routes, choppy macroeconomic conditions, volatile jet-fuel prices, labor-contract inflation, and continued aircraft-delivery delays, he said.

Also read: American Airlines stock sinks toward longest losing streak in more than 2 years amid a broad selloff in the airline sector

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Steve Gelsi covers banking and cannabis as a Senior Reporter for MarketWatch.

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