JetBlue (JBLU) stock fell as much as 3% on Tuesday after a rating downgrade from Evercore ISI that cited balance sheet concerns from the airline's merger with Spirit.
Analysts downgraded JetBlue to Underweight from In-line and left the price target unchanged at $8.
Evercore ISI analysts cited JetBlue's pending merger with Spirit and the impact it will have on the company’s balance sheet as a reason. The acquisition will cost JetBlue $3.8 billion in cash.
“While there will be twists and turns along the way, we believe the Spirit acquisition ultimately gets done while the premium JBLU is paying for Spirit continues to expand,” wrote Duane Pfennigwerth and his team.
The company’s “balance sheet is on a journey from average to worst,” they added.
In contrast, Delta (DAL), which kicks off airline earnings on Thursday is a top pick at Evercore ISI.
The company is expected to double its profit over the second quarter of last year on the back of lower costs and pricing power.
Calling it a “strong leadoff hitter,” the analysts noted Delta "has done a nice job expectation-setting this year, aided by lower fuel, while a recent investor day was a good reminder of Delta’s positive longer term attributes.” The company aims at prioritizing free cash flow and debt reduction.
Lower jet fuel costs are expected to balance out higher labor expenses. Earlier this year, Delta announced a new agreement with pilots that offers $7 billion in higher pay and benefits.
Travel stocks have gone through the roof this year, with cruise line operators gaining the most, followed by the airlines.
Delta (DAL) is up 47% year-to-date, while JetBlue (JBLU) is up 40% and American Airlines (AAL) is 46% higher during the same period.
Travel and leisure is one of the sectors of the economy that has been going strong despite the Fed’s initiatives to tighten monetary policy.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre
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