Analyst Downgrade on US Airways Group, Inc. (LCC)?

US Airways Group, Inc. (NYSE:LCC) trades at 5.5 times forward estimates yet the analyst placed an underperform on the stock. Fellow industry behemoths Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL) trade at multiples closer to 6 times forward earnings.

With the consolidation in the industry and plans by Delta Air Lines, Inc. (NYSE:DAL) to legitimately return capital to shareholders, it seems unreal that investors are willing to unload the airline shares at such low valuation multiples.

Analysts expect earnings to surge at Delta Air Lines, Inc. (NYSE:DAL), reaching over $3 in 2014 from earnings of just $1.88 in 2013. Revenue growth should be limited, but the company will be able to drive margins from less competitive pricing.

Analysts expect United Airlines to see earnings jump to $4.91 in 2014 from $3.65 this year. Trading at $31, the stock is extremely cheap based on any valuation analysis assuming the industry has moved away from the market share focus.

Bottom line

When most slow growth sectors such as utilities trade at earnings multiples of double that of airlines, investors should consider rotating sectors. Clearly the airlines have a history of disappointing the market, but the tide appears to have shifted with this last consolidation of AMR Corporation (PINK:AAMRQ) into US Airways.

Based on the May load factors and cheap earnings multiples, the analyst downgrade of US Airways Group, Inc. (NYSE:LCC) appears to provide a great buying opportunity instead of a reason to panic.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Disagreeing With Analyst Downgrade on US Airways originally appeared on Fool.com.

Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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