Travel stocks were performing well on Tuesday after upbeat comments on the UK bus and rail markets from JPMorgan Cazenove.The US bank raised its ratings for both Go-Ahead (GOG) and Stagecoach (SGC) from 'neutral' to 'overweight'.Analysts Wenchang Ma and Christopher Combe said: "We upgrade GOG and SGC to 'overweight' on the back of: (1) high exposure to the more cyclical deregulated UK bus, a likely beneficiary of firming macro prospects mirrored by upward gross domestic product revisions; (2) sizeable upside potential from Rail, a small contributor to valuation today."They said that GOG appears to offer the most attractive risk/reward profile with +53% implied by their bull-case scecnario: "GOG is the only name that has almost exclusive exposure to the UK market with nearly 40% of earnings before interest and tax (EBIT) derived from deregulated bus alone. Furthermore, current valuation appears to discount only about 60% of targeted incremental EBIT gains (c.£25m)." JPMorgan's target price of 1,800p (up from 1,430p previously) for GOG discounts all of these targeted gains yet still implies 16% upside potential.As for SGC, analysts say that the stock offers "the greatest exposure to UK deregulated bus (about two-thirds of EBIT) and best-in-class margins". SGC's target price has been raised to 365p (from 324p).The US bank also reiterated its 'overweight' position on FirstGroup, saying that the current valuation reflects minimal progress towards targets rooted in the turnarounds of UK Bus and First Student margins. JPMorgan however has maintained its 'neutral' call on National Express, saying that it would "prefer to take a breather in light of a recent rally".BC
Firstgroup (FGP)