Airlines: Solid Revenue Greeted With Analyst Enthusiasm, Investor Selling

You can never let a little good news stand between you and your desire to sell. That seems to be the case for American Airlines (AAL) and Southwest Airlines (LUV) today, who’s solid revenue numbers have caused shares of these airlines–as well as Delta Air Lines (DAL) and United Continental (UAL) to fall today.

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The Associated Press has the details on the revenue figures released by American Airlines and Southwest Airlines:

American Airlines Group Inc., which owns American and US Airways, said that traffic rose 2.1 percent in May as passengers flew 19.2 billion miles…The company said that based on April and May results and a forecast for June, it expects that revenue for every seat flown one mile will rise by between 5 percent and 7 percent in the second quarter, compared with the same quarter last year…

Southwest Airlines Co. said that the same revenue figure rose 8 percent to 9 percent in May, compared with May 2013. Last week, Delta Air Lines Inc. reported a 7 percent gain for May.

Cowen’s Helane Becker and Conor Cunningham are impressed with how well the merger of American Airlines and US Airways is going:

One of the push backs we get for our Outperform rating on the common shares of American is due to potential integration missteps. A lot of the issues that could cause a hiccup have been addressed. For example, management already has contracts with its labor unions and code share is already in place; as a result believe there are limited issues in 2014. The company is working toward a single operating certificate, which is likely to occur by year-end. Merging operations is likely to be a 2H15 event.

Stifel’s Joseph DeNardi boosts his target price on both Delta Air Lines and American Airlines to $50 from $45. He explains why:

We remain bullish on the prospects for the airline industry both in the near-term and longer-term as capacity discipline continues to foster a robust domestic pricing environment and ROIC focused management teams drive a more rational competitive landscape. Largely as a result of this, we continue to see a greater likelihood of potential upside to our estimates and target prices than downside risk. We note that our target price increases are driven entirely by an improved outlook for financial performance and not by any expectation for multiple expansion. While we believe that airline industry multiples should eventually see a re-rating, our 12 month target prices are not based on multiples in line with the S&P 500.

To no avail today. Shares of American Airlines have dropped 1.2% $43.35 at 1:41 p.m. today, while Delta Air Lines has fallen 0.7% to $41.95, Southwest Airlines has declined 0.6% to $27.41  and United Continental is off 2% at $47.07.