LatAm Airlines is likely to gain ground due to its financial flexibility, which should allow it to navigate elevated jet fuel prices, according to JPMorgan. The bank initiated coverage of the airline with an overweight rating. It also put a $70 price target on shares, suggesting 37% upside from Tuesday's close. "We reiterate our preference for LTM … supported by superior earnings momentum and a lighter balance sheet," analyst Guilherme Mendes said Wednesday in a note to clients. LatAm and other airlines could recalculate flight costs as geopolitical developments unfold, enabling operators to weather spikes in jet fuel costs that threaten to shrink its margins, according to JPMorgan. Futures tied to international benchmark Brent crude were last trading around $98.19 per barrel, up 61% in the year to date due in large part to the Iran war. The analyst sees LatAm's EBITDA at $4.268 billion by the end of the year. That's 3% above the Street's consensus, assuming a jet fuel cost of $3.3 per gallon, he said. "On a broader sector level, we believe that the airline space has room to continue to gradually re-rate, depending on geopolitical developments and a potential stabilization of fuel prices," Mendes wrote. JPMorgan's call falls in line with consensus on Wall Street. All seven analysts covering LatAm have a buy or strong buy rating on the stock, LSEG data shows. Shares have fallen nearly 6% year to date, underperforming the overall market.
