Benzinga | Dec 16, 2020 02:25PM EST

JPMorgan Downgrades Airlines JetBlue, Spirit, United, Recommends 'Selective Profit-Taking'

Airline stocks have been flying high since the March market bottom, but one Wall Street analyst said Wednesday that a few of them have flown too high too fast.

The Analyst: JPMorgan analyst Jamie Baker double-downgraded the following three airline stocks:

* JetBlue Airways Corporation (NYSE:JBLU) from Overweight to Underweight, price target cut from $16 to $14.

* Spirit Airlines Incorporated (NYSE:SAVE) from Overweight to Underweight, price target reiterated at $25.

* United Airlines Holdings Inc (NYSE:UAL) from Overweight to Underweight, price target cut from $47 to $44.

Related Link: Airline Stock Short Sellers Deboard Ahead Of Coronavirus Vaccine Approval

The Thesis: In the downgrade note, Baker said his bearish take on the three airline stocks has mostly to do with their valuations after strong rallies in the last six months.

"What began as a simple housekeeping response to disappointing but unsurprising 4Q demand trends has, instead, become a recommendation for selective profit-taking," the analyst said.

The airline rally has pushed a handful of airline stocks above the firm's 2021 price targets, which were based on 2022 financial projections, he said.

Investors should understand that the Underweight ratings are not akin to a hard sell call, Baker said.

Instead, he said near-term upside for the three downgraded stocks is no greater than 7%, suggesting they could underperform both their peer group and the broader market in coming months.

The analyst said investors who have been along for the ride in these stocks should consider locking in profits, but he is not recommending a short position in airline stocks.

Despite the downgrades, Baker said he remains bullish on airline stocks Alaska Air Group, Inc. (NYSE:ALK) and Delta Air Lines, Inc. (NYSE:DAL).

Benzinga's Take: The one-two punch of FDA-approved coronavirus vaccines and another round of large-scale government stimulus in the next couple of months could go a long way in restoring investor confidence in airline stocks.

Yet it may take the industry a long time to fully recover, and investors will need to determine just how much of that recovery is already priced into airline stocks after the recent rally.