Upgrades, Downgrades and We’re Back to the Races in 2007


Wall Street was back up and running at full bull this morning — after the equity markets took Tuesday off in honor of former President Ford’s passing.

This morning airline stocks are some of the most active out there as investors sieve through upgrades, downgrades, and lower oil prices.

For what it’s worth, the flurry of activity comes after both American Airlines and Continental have already issued earnings warnings for the fourth quarter. The latest warning came from Continental on Tuesday, as the airline said that it now expects to post a “modest” loss for the fourth quarter.

Clearly the not-so-good news reported by both American and Continental in the last week had little bearing on airline investors, however, as shares of AMR, parent of American, were up 9% in trading as of this writing, and CAL’s shares were up 6%.

Then again, are these investors — or merely those opportunists who don’t want to miss out on a potential merger “bounce?”

Last week, as we noted here, American was dragged, pretty much unwillingly, into the world of hedge funds and their desire to turn a quick buck, after it was reported that FL Group had taken a 6% share in the airline. As I wrote to one reader who asked what this meant for the airline, it means that FL is interested only in making a nice return on its money. Translation? They would be likely to push American to merge with another carrier — only for the resulting anticipated “bounce” such news would create for AMR shares.

Not one day later, it was announced that FL was seeking a “sit-down” with AMR officials.

This one could get interesting.

As for soaring airline shares, while most all domestic airline shares are in the plus column today, two are leading the way. Our two Chinese carriers, China Eastern Airlines, and China Southern are scorching the competition today. Shares of China Eastern are up 22% as we post this, while shares of China Southern are up 12%.