BofA Merrill Lynch upgrades Ryanair, downgrades IAG

Bank of America Merrill Lynch upgraded Ryanair to 'neutral' from 'underperform' and lifted the price target to €15.30 from €12.50 as it took a look at the airlines sector.

"Given Ryanair is still being one of the most loved share prices and with recent traffic statistics persistently choosing volume growth over pricing power, we believe waiting for a pricing inflection to the upside makes sense."

The bank reiterated its 'neutral' stance on easyJet but upped the price target to 1,050p from 1,030p.

It said four profit warnings in eight months have made it hard to stimulate interest in the shares.

"easyJet is waiting for its ‘epiphany-moment’ so that shareholders that are nestling in Ryanair can re-engage with easyJet management and the share price. Such an inflection, in our view, can only be stimulated by management change or a capitulation on easyJet's illogical capacity growth plans. Until then, we wait."

Merrill said that overall, at both Ryanair and easyJet, despite some signs of their underperformance bottoming, there is not enough improving fundamental data to substantiate a 'buy' case for either.

The bank downgraded British Airways and Iberia parent International Consolidated Airlines Group to 'underperform' from 'buy' and cut the price target to 500p from 550p.

It reckoned that IAG's North Atlantic performance - a key contributor - will splutter in the second quarter and second half of this year as a number of factors put pressure on sentiment and fundamentals.

It said there is evidence to suggest that broader corporate travel spend, in particular financial services, will see pressure through the course of 2017.

As far as leisure travel is concerned, there have been a number of new entrants into this market, in particular Norwegian Air Shuttle, which despite a "likely flawed and certainly leveraged business model", will possibly cause deflation in the market.

At 1000 BST, Ryanair shares were down 1% to €14.42, easyJet shares were off 0.9% to 996.50p and IAG shares were down 4.2% to 526.68p.