Orbitz Vs. American Airlines: Déjà Vu All Over Again?
American withdrew from Orbitz for about six months in a similar disagreement three years ago. FBR's Jake Fuller said the earlier episode cost Orbitz 16 percent of its domestic ticket revenue. Fuller put the current annualized risk at five percent to six percent of total Orbitz revenue.
Given air fares' low margins relative to hotel and other bookings, Fuller sees a 3 percent to 4 percent current threat to earnings before interest, taxes and depreciation. Thus, Fuller called into question the shares' drop of nearly 7 percent since news of the dispute broke Tuesday.
Fuller rates Orbitz Market Perform with an $8.43 target.
Despite similarities with 2011, there's one important difference: American now has a 21 percent market share of U.S. air travel, compared with 13.6 percent three years ago.
Oppenheimer's Manish Hemrajani pointed out the airline's growth and said the potential impact on Orbitz' revenue and margins "keeps us on the sidelines" with a Market Perform rating and $8.04 target.
Naved Khan of Cantor Fitzgerald said "limited visiblity" on American Airlines' dispute with Orbitz leaves him also maintaining a Hold rating on Orbitz with a $10 target.
Orbitz has less dependency on the air ticketing segment for its revenue than in 2011, Khan said, but circumstances "pose a risk" to 2014 estimates.
Orbitz closed Thursday at $7.93 down 2.3 percent.
Latest Ratings for OWW
|May 2015||Guggenheim||Initiates Coverage on||Neutral|
|Feb 2015||Goldman Sachs||Upgrades||Sell||Neutral|
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