As leading U.S. airline stocks sink to their lowest lows of the past few years, investors are looking at the current situation as a bargain buying opportunity. However, analysts at Morgan Stanley advise staying far away from beaten-down airline stocks. (See also: 5 Big Airlines Lost $10B in Market Cap: Buy Now?)

The recent sell-off has been driven by investors’ fears over an extreme pricing war raging between the major airlines and discount carriers,

“‘Cheap’ valuation and poor sentiment are not enough to get us more constructive on the group,” wrote Morgan Stanley’s Rajeev Lalwani and team in a recent research note. The investment bank indicates that after polling investors regarding whether or not they believe the airline industry is pricing in a downturn, most say that while they do reflect a pricing war, they have not priced in a worst-case scenario. Morgan Stanley disagrees, suggesting that airline stocks, off an average of more than 20%, are “possibly pricing-in a worst-case scenario.”

Revenue Per Seat Mile Likely to Weaken 

Lalwani indicates that major players such as American Airlines Group Inc. (AAL), Delta Air Lines Inc. (DAL), Southwest Airlines Co. (LUV) and United Continental Holdings Inc. (UAL), are “unlikely to cut growth dramatically into 2018 per a range of accretive strategies, and consensus estimates remain too high by at least 15%, both of which will likely be key to stock performance.” While the group is trading at a “market-like multiple of around 17-20x on 2018E,” the analyst suggests that revenue per available seat mile (RASM) is likely to weaken further into Q4, “per tougher compares, a full quarter of competitive actions, and still elevated domestic capacity at nearly 5%.”

Ultimately, Morgan Stanley says that in order “to become more constructive on the group and to observe a sustained rally, these nonvaluation-related factors would have to be addressed in the coming quarters.”

Remaining downbeat on the segment overall, Lalwani does highlight bright spots in Alaska Air Group Inc. (ALK), Delta and Southwest, rating all three stocks at overweight. (See also: Delta Is the Best Buy Among Airlines: Barclays.)

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