Michael Linenberg of Deutsche Bank downgraded three airline stocks on April 1: American Airlines Group Inc (NASDAQ:AAL), Delta Airlines, Inc. (NYSE:DAL), and United Continental Holdings Inc (NYSE:UAL). Analysts have been eager to weigh in on airline stocks since oil prices dropped, thus cutting costs for airlines. Linenberg refers to these airlines as the “Big Three” and notes that “international sales will be a source of earnings disappointment in the next few quarters.”

Several factors, including “strong US dollar, greater-than-expected capacity increases by non-US airlines, and decelerating GDP growth” will add pressure to the analyst’s forecast. Linenberg added that the airline industry is poised to “produce record profits and free cash flow this year,” but remains bearish for several reasons:

American Airlines

Michael Linenberg downgraded American Airlines from Buy to Hold and lowered his price target from $78 to $58. Although the analyst noted that the U.S. airline industry is on track “to produce record profits and free cash flow this year,” Linenberg downgraded the airline because the profits and free cash flow will not be as significant as analysts had predicted. Linenberg added, “Potential investors are less enamored with the Big Three carriers today than six months ago.”

Linenberg has only rated American Airlines twice since December 2014, when he issued a Buy rating before share prices slightly fell. Consequently, the analyst has a -0.5% average loss per American Airlines recommendation.

On average, the top analyst consensus for American Airlines on TipRanks is Moderate Buy.

Consensus AAL

United Continental 

Linenberg downgraded United Continental from Buy to Hold because he believes shares will be range-bound in the near-term, lowering his price target to $70 from $85. He speculated that airlines will combat stock price weakness with share repurchase authorizations. Although he notes there is risk in the volatility of fuel prices, he believes the sector is becoming attractive for investors due to substantial cash flow.

Michael Linenberg has rated United Continental 7 times since October 2011, earning a 50% success rate recommending the airline with a +18.5% average return per recommendation.

On average, the top analyst consensus for United Continental on TipRanks is Moderate Buy.

UAL consensus

Delta Airlines 

Linenberg downgraded Delta from Buy to Hold and lowered his price target from $60 to $50. He lowered his rating for the same reason as the other two stocks; beliefs that “shares will be range-bound in the near-term” along with the risk of oil volatility. The risk of oil price volatility is significant enough to undermine attractive valuations. Since Delta hit a 52-week low of $30.12 in October, shares have been rising and last closed at $44.96 on April 1.

Michael Linenberg has rated Delta 14 times since July 2012, earning an 83% success rate recommending the stock and a +47.6% average return per recommendation.

On average, the top analyst consensus for Delta on TipRanks is Moderate Buy.

DAL consensus

Overall, Linenberg has a 67% success rate recommending stocks and a +28.6% average return per recommendation.

Linenberg