Two research firms issued bullish notes on airlines recently. Barclays upgraded American Airlines (AAL) to Overweight from Equal Weight today, while UBS yesterday wrote that airlines stocks have multiple positive catalysts.

BARCLAYS: American has "a bright future," according to Barclays analyst Brandon Oglenski. The company's management team is "focused and properly incentivized," while its valuation "more than reflects current headwinds," Oglenski wrote. Moreover, changes to the company's labor contracts and systems should enable it to obtain greater benefit from the assets it acquired from US Airways, according to Oglenski. Now that the company can devote less time to integrating assets it acquired, it can spend more time focusing on revenue enhancing opportunities, the analyst stated. He raised his price target on the name to $65 from $55.

UBS: Airline stocks covered by UBS have dropped an average of about 15% this quarter, reflecting higher fuel costs, lower unit revenue forecasts, and the larger airlines' decision to match the fares of low-cost carriers, according to analyst Darryl Genoves. The analyst noted that he had cut his estimates for the sector's 2018 results by just 10%. Moreover, he believes that the sector has positive catalysts, given what he sees as "very low" revenue per available seat mile expectations for next quarter, "reasonable" consensus 2018 earnings estimates, and his belief that capacity growth will decelerate as soon as the second half of next year. He identified Delta (DAL) and United Continental (UAL) as his favorite names in the sector. United is betting that the revenue hit it will take from capacity gains will be offset by higher margins, driven by share gains and a greater percentage of revenue from the U.S., the analyst stated.

OTHERS TO WATCH: Other publicly traded companies in the space include JetBlue (JBLU) and Southwest (LUV).

PRICE ACTION: In morning trading, American rose 1.8%, Delta added 0.7% and United Continental gained 0.5%.