UBS Financial Upgrades AirTran to 'Neutral'

Analyst Sam Buttrick says the discount airline's shares are cheap after a recent downturn, but he warns of ongoing capacity issues

UBS Financial upgraded AirTran Holdings (AAI ) to neutral from reduce.

Analyst Sam Buttrick says the discount airline's shares have shed more than 40% in the last two months, as the market takes a more balanced sector view and as competitive capacity additions begin to erode margins. Buttrick believes this may only be the tip of the iceberg -- the first warning need not be the last. He remains cautious on the discount sector as a whole, but notes AirTran shares are down almost 50%.

As such, he upgraded the shares to neutral on valuation. However, he reduced the 80 cents 2003 earnings per share estimate to 71 cents, and cut the $1.00 2004 estimate to 85 cents. Also, Buttrick cut the $15 target to $12.75, which is 15 times his fully taxed 2005 earnings per share estimate.

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