Imperial Cuts Hawaiian Holdings Estimates, Maintains Outperform On Manageable Capacity Growth

In a report published Friday, Imperial Capital analyst Bob McAdoo maintained an Outperform rating and price target of $27 on

. The 2Q15 estimates have been lowered to reflect weaker unit revenue trends, mostly in the domestic markets. "While some investors have expressed concerns regarding excess capacity from the West Coast to Hawaii…4Q15 industry capacity growth at this point still appears manageable," McAdoo stated. Hawaiian Holdings has been witnessing seasonally stronger revenue trends through summer, and the analyst expects the company to also benefit from the decline in jet fuel prices. The combination of significantly lower capex and fuel costs during 2015 and 2016 are likely to lead to capital return to shareholders, as well as a fresh share buyback initiative. The management has also recently announced that it expects operating unit revenue to decline to a greater extent than it had previously guided, while attributing the weakness in unit revenue trends to lower than anticipated passenger revenue on the company's domestic routes. "[T]he company acknowledged that it has entered into a lease agreement for an A330-200. The six year lease, which begins in summer of 2016, should allow the company to accelerate the retirement of some of its Boeing 767-300 aircraft," the Imperial Capital report said, while also adding that Hawaiian Holdings did not provide a date for the proposed aircraft retirements. The company is, however, expected to start taking deliveries of its new A31 aircraft in the beginning of 2H17, with three aircraft being delivered in 2017, six in 2018, another six in 2019 and one in 2020. The EPS estimate for 2Q15 has been lowered from $0.70 to $0.60 to reflect the updated guidance. The fuel cost estimates for 3Q15 and 4Q15 have also been lowered. The analyst expects the recent decline in jet fuel prices to positively impact earning in 2H15.