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Merrill Upgrades Continental Air to 'Buy'

Merrill Lynch upgraded Continental Airlines (CAL) to buy from neutral.

Merrill also upgraded Frontier Air (FRNT), Delta Air (DAL) , Northwest Air (NWAC), and Alaska Air (ALK) to buy from neutral.

Analyst Michael Linenberg says the worst may be over for airlines (i.e. war, SARS, recession). He notes the industry's restructuring is well under way. Their initiatives -- labor, aircraft retirements, etc. -- may not be viewed as dramatic, but he thinks these issues will have a larger positive impact on bottom lines than is implied by current forecasts.

Linenberg says the bankruptcy threat has diminished for most airlines. He notes Continental boasts industry-leading operational metrics. Also, he says Continental's p-e multiple looks attractive. He sees a $5.50 2003 loss per share, and a $1.00 2004 loss per share for Continental. He also has a $16 target on the shares.

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