UPDATE: Stifel Initiates Coverage On Virgin America On Limited Upside Potential

In a report published Tuesday, Stifel analyst Joseph W. DeNardi initiated coverage on Virgin America Inc VA with a Hold rating. In the report, Stifel noted, "Virgin America (VA) has found a successful niche serving corporate and higher-end leisure traffic out of San Francisco (SFO) and Los Angeles (LAX) and has been opportunistic in acquiring gates at capacity-constrained airports (DAL/LGA/DCA). While Virgin's profitability has improved in recent years as ASM growth has slowed, it takes delivery of 10 A320s between 2H15-1H16 and is targeting 8%-10% average ASM growth. "In addition to the pressure that this growth will put on unit revenue trends - pressure that could be exaggerated by the nature of Virgin's business model which targets corporate traffic (and thus more likely to see an aggressive competitive response), Virgin is also facing fairly material labor cost pressure this year which limits margin expansion relative to its peer group. Due primarily to this limited upside potential and concerns over performance risk as Virgin's growth resumes, we are initiating coverage with a Hold rating." Virgin America closed on Monday at $31.30.