United Is Back, Alaska Is Unbowed – Lessons from Airline EarningsBy twocents@thestreet (Ted Reed) NEW YORK ( TheStreet) -- Two lessons have emerged from the first week of airline earnings which triggered a rush to buy airline stocks and erased 2015 losses for shareholders. First, it seems, United is back, or at least on the wayBy twocents@thestreet (Ted Reed) NEW YORK ( TheStreet) -- Two lessons have emerged from the first week of airline earnings which triggered a rush to buy airline stocks and erased 2015 losses for shareholders. First, it seems, United is back, or at least on the way back, after years of trailing American and Delta in various industry metrics. Must Read: The U.S. Is the Best Place To Be -- Just Ask Delta Airlines Uh-Oh Is the giant awake? Sure seems like it, was the title of a report by Cowen & Co. analyst Helane Becker after United reported earnings last Thursday. Secondly, Alaska has apparently found a way to prosper despite Deltas intrusion on its Seattle hub. For some (including me) it was hard to imagine that would occur. More revelations may come when American reports on Tuesday morning and when JetBlue reports on Thursday. One thing is obvious: Expectations are high. Since the close of trading on Friday, Jan. 16, the shares of every major airline have risen between 10% and 11%. Markets were closed on Monday Jan. 19, and Delta kicked off airline earnings on Tuesday. Alaska, Southwest and United all reported on Thursday. At Fridays close, Delta shares traded at $50.56, up 10% in a week. Alaska closed at $68.65, up 10% in a week. Southwest closed at $55.69, up 11%. United closed at $73.10, up 11%. American closed at $49.81, up 11%. JetBlue closed at $16.55, up 11%. In her report on United, Becker wrote that United continues to build credibility with their turnaround story with solid 4Q14 results and an improving outlook for 2015. Noting that the carrier came in 2 cents below estimates, Becker said, We acknowledge that some bears (if they exist in the airline space right now) would view 4Q14 results coming below expectations as a negative. However we believe the investment community is much more focused on the outlook, especially (passenger revenue per available seat mile), which was much better than expected. Becker has an outperform rating on United and an $85 price target. She raised her current quarter estimate to $1.38 a share from 29 cents. Analysts surveyed by Thomson Reuters estimate $1.15. Must Read: Before Its Tie-up with US Airways, American Eyed United, Book Says Imperial Capital analyst Bob McAdoo isnt quite so enthusiastic. He has an in-line rating and a $75 price target. United should benefit from lower fuel costs, but operating margins will likely continue to lag peers, he wrote. As for Alaska, Wolfe Research analyst Hunter Keay wrote, Since 2013, Delta has taken 8 percentage points of market share at Seattle, almost none of which has come at ALKs expense. Over that time low cost carrier capacity there is down 3% and the number of ALKs monopoly markets has increased by 10%. Delta, with costs from 10% to 25% above ALKs (depending on the math), is the other airline on 28% of ALKs duopoly markets now, up from 3% in 2013, Keay said. DALs growth in Seattle has been a clear positive for ALK but uninterested investors see a turf battle and move on, Keay said. Our advice: stop moving on. Keay has been Alaskas biggest booster in the face of Deltas assault on Seattle. He has a market overweight rating and a $92 dollar target price. Deutsche Bank analyst Mike Linenberg has been a leading skeptic. He has a hold rating and a $71 target price. We continue to see growing competition and unit revenue pressures in Alaskas Seattle hub (e.g. we are projecting Mar Q PRASM -5.9%), Linenberg wrote. (But) we believe ALK should be able to more than offset that through lower fuel costs and announced ancillary revenue initiatives. As such, we are raising our 2015/16 EPS estimates as well as our price target to $71, he said. Given that the implied upside is less than 10%, we are maintaining our hold rating on this high quality and well-run company. High quality and well-run? Yes, absolutely. But at this moment, in an industry where a rising tide is lifting every boat, that gets you nothing but a hold rating. -- Written by Ted Reed in Charlotte, N.C. To contact this writer, click here. Follow @tedreednc Click to view a price quote on ALK. Click to research the Transportation industry. ift.tt/1gB4pon
Posted on: Mon, 26 Jan 2015 12:04:28 +0000
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