Imperial Capital Cuts United Targets 13% On Lagging Margins, Sees More Upside At Southwest And Alaska Air

In separate reports published Friday, Imperial Capital analyst Bob McAdoo reviewed the 2Q results reported by three US Airlines. Analyst Bob McAdoo maintained an Outperform rating on Alaska Air Group, Inc. ALK, while raising the price target from $86 to $96. The company reported revenues of $5.4bn, EBITDA of $1.4bn and EPS of $5.29 for the latest 12 months ended June 30. The company reported record results for 2Q, beating Street expectations. Moreover, the cost guidance, including fuel expense, suggests that Alaska Air should continue to generate record results and record ROIC through the rest of this year. "Alaska Airlines continues to show that the new Delta competition in Seattle is no problem," McAdoo commented, while adding, "Softer PRASM trends at Alaska are more likely the result of new route development at Alaska rather than broader industry capacity headwinds focused that others are seeing at Dallas, Washington D.C. and Chicago." Imperial Capital maintained an Outperform rating on Southwest Airlines Co LUV, with a price target of $64. Southwest Airlines reported revenues of $19.0bn, EBITDA of $4.2bn and EPS of $2.83 for the latest 12 months ended June 30. The company reported record operating results for 2Q and its guidance suggests that PRASM pressures "should subside in coming quarters," McAdoo said. In the report Imperial Capital noted, "[Southwest's] ROIC is the highest of airlines that have reported 2Q15 results to-date." The company reported an ROIC of 28.2 percent for the trailing 12-month period, as compared to an ROIC of 22.0 percent at Alaska Air and 18.2 percent at United Continental. "We expect ROIC at Southwest to be at, or near, the top of the industry as we receive additional airline results over the coming weeks," McAdoo wrote. The analyst reduced the price target for United Continental Holdings Inc UAL from $75 to $65, while maintaining an In-Line rating. The company reported revenues of $38.4bn, EBITDA of $6.1bn and EPS of $8.78 for the latest 12 months ended June 30. Although the company reported record operating results, the guidance reflected that its pre-tax margins would "continue to lag legacy peers," McAdoo said. While United Continental announced modest capacity cuts for the rest of this year, McAdoo said that the while steps appeared to be "appropriate," the company may need to make "more aggressive capacity cuts."