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

Even with a fundamental shift in the airline sector, analysts are quick to downgrade US Airways Group, Inc. (NYSE:LCC) at market low earnings multiples. Sure the airline industry has historically struggled to make profits, but the recent consolidation provides hopes for a liberated industry.

The company operates more than 3,100 flights per day and serves 198 communities around the globe. US Airways Group, Inc. (NYSE:LCC) expects to close the merger with AMR Corporation (PINK:AAMRQ) in the third quarter to become the largest domestic airline. The stock, though, was down around 6% at the lows of the day based in large part on the downgrade.

Analyst downgrade

Bank of America downgraded shares of US Airways Group, Inc. (NYSE:LCC) and lowered the price target on the stock to only $16. The analyst placed an underperform rating on the stock based on concerns that the proposed merger with AMR Corporation (PINK:AAMRQ) wouldn’t produce enough synergies in the short-term to justify a higher price.

One important factor to note when reviewing an analyst position is whether the previous prediction was accurate. Note that the analyst was previously neutral on the stock while it soared to $19.70 prior to the recent sell-off. Any analyst neutral or negative on the stock missed a significant run over the prior months. In reality, this downgrade didn’t change negative opinion by the analyst. If an investor believes in the story, this opinion shouldn’t be followed.

Best load factor for May

The intriguing part of the downgrade is that US Airways Group, Inc. (NYSE:LCC) reported a record load factor in May of 85.8% for mainline passenger traffic. The figure was up 1.7 points versus last May. More importantly the revenue passenger miles increased by 5.9% compared to the 3.9% increase for the available seat miles.

Most of the May and year-to-date traffic numbers at US Airways Group, Inc. (NYSE:LCC) and other airlines continue to suggest a major shift in the airlines focus away from market share towards profits.

Cheap earnings multiple

Clearly the market doesn’t fully believe in the airline industry yet. The stocks trade at some of the lowest multiples in the market by far. With the market approaching PE multiples of around 16, the top airlines all struggle to reach 6.