Shares of AMR. Corp. (AAMRQ) have surged as the chances that its merger with US Airways (LCC) increase. But is all the good news priced into the stock?
Associated PressIt just might be, says JPMorgan’s Jamie Baker and Mark Streeter, who downgraded shares of AMR Corp. to Neutral from Overweight. They write:
[The] current value of AAMRQ implies a ~66% probability of a merger…Given recent settlement momentum, we are comfortable nudging our earlier 60% probability to the 70-75% range.
While our AAMRQ upside analysis is comparatively straightforward, the downside analysis is more difficult to assess. Even slight tweaks to multiples, the claims pool, intercompany issues and EBITDAR can produce significant swings in estimated standalone Q values (gyrating between $1.00 to as much as $6.00). In light of the 97% surge in the past month (vs. S&P 500 +4%) and the lack of clarity on downside, we feel that upside potential for AAMRQ needs to handily exceed the customary 25-30% that we look for in Overweight-rated airline names, even if we remain bullish in general.
Shares of AMR Corp. have dropped 3.5% to $9.31 today at 10:50 a.m., while US Airways is off 2% at $22.33. United Continental (UAL) has fallen 1.9% to $34.83 and Delta Airlines (DAL) is off 1% at $27.18.
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