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TUI shares jump as Morgan Stanley ups rating after share price tumble

A share price plunge of around 30% since a shock profit warning in early February had left shares in the FTSE 100 travel operator "attractive", according to Morgan Stanley's analysts
TUI Boeing 737 MAX 8
TUI's gloom has been compounded this week due to the grounding of Boeing's MAX aircraft, which make up around 10% of its fleet

TUI AG (LON:TUI) shares were given a boost in late-morning trading on Thursday after Morgan Stanley upped the stock to ‘overweight’ from ‘equal weight’ following an “overreaction” that has seen the price drop around 30% since early February.

TUI’s tumble started after it issued a shock profit warning at the start of last month as 2018’s summer heatwave and a weaker pound reduced the number of Brits travelling abroad, causing the FTSE 100 travel group to predict flat underlying earnings (EBITDA) for the year.

READ: TUI shares descend as it blames warm weather and weak pound for profit warning

The gloom was compounded shortly after as the company reported almost double losses in its first quarter results.

Matters haven’t been helped this week by the saga surrounding the grounding of Boeing Co’s 737 MAX range of aircraft, which makes up about 10% of TUI’s fleet.

On Wednesday, Boeing finally bowed to pressure from aviation regulators in several countries and grounded all 371 of its MAX planes, with the UK among the list of nations that had already grounded the aircraft following two fatal crashes in the last five months.

READ: Boeing bows to pressure and grounds all 737 MAX’s after US bars aircraft

However, in a note, Morgan Stanley said the share price reaction was overdone and the plunge had left TUI’s 8.2% dividend yield higher than its earnings multiple, a “rare crossover” that made for an “attractive” valuation.

Analysts also retained their 1,250p price target on the stock, adding that the “more plausible” prospect of the UK’s exit from the EU being “softened or seriously delayed” following the rejection of Theresa May’s withdrawal deal by Parliament on Tuesday and a subsequent vote to rule out a ‘no deal’ exit on Wednesday should help TUI’s performance.

Shares were up 6.2% at 818p.

-- Amends headline and updates share price --

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