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Bear Stearns Upgrades Northwest Airlines

Bear Stearns upgrades Northwest Airlines (NWAC) to outperform from peer perform. It has a $8 price target on the stock.

Analyst David Strine says the stock is down more than 50% year to date, and he thinks Northwest shares are pricing in uncertainty surrounding potential mechanics (AMFA) strike this weekend, service disruptions as the company engages its strike contingency plan, and the lack of follow-on concessions from other work groups.

Strine thinks the risk/reward profile is favorable. Following a showdown with AMFA, he thinks it's probable labor costs will be set to decline by 23% year-over-year or $700 million in 2006, stopping cash burn. As the market reassesses Northwest's cash burn and liquidity, he thinks perception of the near term bankruptcy risk should decline.

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