Barclays Initiates Coverage On Virgin America, Shares Rise Nearly 10%

Barclays initiated coverage on Virgin America Inc VA Wednesday with an Overweight rating and $42 price target.

Analyst David Fintzen commented that VA is built for the premium and business travel segment, much like Ultra Low-Cost Carriers (ULCCs) are now built from the ground up for leisure. VA is focused on a business customer base while maintaining a low-cost operation.

“While new routes tend to take longer than most LCCs to spool up, the Virgin America model has proven successful in generating premium revenue in its most developed markets, from transcontinental markets (LA/San Francisco to NYC) to shorthaul California.”

Fintzen forecasted “17 percent upside potential in VA, 82 percent if fuel stays low and has limited revenue implications. VA is among the most levered to fuel in our coverage, due to: 1) limited hedging for 2015, 2) longer-than-average stage length with a heavy domestic focus, and 3) relatively low margins.”

The analyst note concluded that “VA employs a young and fuel-efficient fleet, focusing on a single aircraft type with high utilization in predominantly point-to-point markets. As a result, its cost structure is not far off best-in-class.”

Shares of Virgin America rose sharply Wednesday as the quiet-period ended and several firms commented on the stock.

Virgin America, Inc. recently traded at $39.37, up 9.95 percent.