On eve of bankruptcy, Wall St said hang on to AMR

(Reuters) - Investors who took Wall Street at its word would have been clinging to shares of American Airlines' parent company AMR Corp before Tuesday morning, or even planning to add to their holdings.

Trouble is, AMR filed for bankruptcy on Tuesday.

Fourteen of the brokerage firms that cover AMR had a hold or buy rating on the stock before the company filed for bankruptcy protection.

Such positive ratings are common for many U.S. firms and show how fallible sell side equities analysts can be. The number of "hold" ratings on AMR suggest that outlook may mean one thing to brokerage insiders and another to regular investors.

Out of the top brokerages that cover AMR, only Morningstar had the stock's fair value at zero.

In fact, as recently as Monday Morgan Stanley sent a general note to clients that kept an "overweight" rating on AMR. It had a base-case valuation of $6 a share, though the research note did say that was not the "official" price target.

Cold comfort to shareholders who heeded the advice. AMR shares plummeted 84 percent on Tuesday, closing at 26 cents.

Four more brokerages, including Barclays Capital and Deutsche Bank Research were recommending to pile up on the stock as of Monday, with either "buy," "overweight" or "market outperform" ratings.

Morgan Stanley and Deutsche Bank analysts declined to comment. Barclays' main AMR analyst was unreachable.

A smaller research firm, Dahlman Rose, almost got it right. They had a "sell" on the stock until November 18, when it was upgraded to a "hold."

The reason behind that upgrade, one of the firm's research analysts told Reuters, was that even though they discussed the potential for a bankruptcy, no one thought it would come so soon since AMR's chief executive Gerard Arpey was strongly against it.

AMR announced Arpey's retirement at the same time it did the bankruptcy filing.

Besides the new call from Dahlman Rose, the other neutral ratings on AMR came from Argus Research, BofA/Merrill Lynch, CRT Capital Group, JPMorgan, Maxim Group, Sterne Agee & Leach, Ticonderoga Securities and UBS.

Citi follows AMR but didn't have an official rating because of current business with the company, but after the bankruptcy filing issued a "sell" rating with $0 price target.

BUY! BUY! BUY!

The positive bias on research is far from limited to AMR. In fact, AMR analysts were less positive than average on the company, when compared to the U.S. stock rating universe.

Out of the near 36,000 brokerage ratings on about 9,500 U.S. companies' stocks, more than 54 percent are a "strong buy" or "buy" according to data from Thomson Reuters StarMine.

About 5 percent of all calls are for "sell" or "strong sell," which leaves just above 40 percent of the calls as neutral.

"As an analyst, you don't follow a company that is terrible and people should sell it," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Forrest, who started her career as a sell-side analyst for what was then regional broker Parker/Hunter, said that some analysts also "don't see the writing on the wall; they are just wrong."

In fact there may be an element of double-speak on Wall Street ratings.

"The overwhelming 'hold' ratings should have given you a clue (AMR) is not a company to keep, because if you're only going to perform like the market why hold on to it," Forrest said.

Many appeared to be taking the "hold" rating literally before Tuesday. In contrast, the selling on Tuesday was massive. More than 200 million shares changed hands, the largest daily volume ever for AMR. For more on AMR's bankruptcy filing see [ID:nN1E7AS1O5]

(Reporting by Rodrigo Campos, Caroline Valetkevitch, and Edward Krudy in New York; editing by Burton Frierson and Andrew Hay)