Imperial Capital Downgrades Atlas Air Worldwide, Warns Of New Cargo Data

• Shares of Atlas Air Worldwide Holdings, Inc. AAWW have declined 35.34 percent over the past three months, following the 52 week high in May.
• Imperial Capital’s Scott Buck has downgraded Atlas Air from Outperform to In-Line, while lowering the price target from $65 to $42.
• Following the robust trends seen in 1H15, Buck believes that recent cargo data points towards softening in air freight demand in 2H.

According to the Imperial Capital report, “Higher demand for air freight in the first half of 2015 was largely driven by the labor shutdown of the West Coast ports as well as substantially lower jet fuel prices.”

The company is more vulnerable to short-term changes in demand for air freight, and the stock appears to have reacted to signs of a downward trend in demand. “We expect shares of AAWW to continue to trade closely with monthly air freight demand trends and global economic indicators,” Buck stated.

However, the company’s current guidance implies that there could be significant earnings growth, as compared to the 2014 levels. Data from the International Air Transport Association (IATA) suggests that the freight-tonne-kilometers growth rate had declining for three successive months, turning negative on a year-on-year basis in July.

“These slowing trends are supported by data from both Hong Kong International Airport, which is the world’s number one cargo hub, as well as Shanghai Pudong International Airport Cargo Terminal,” the report said.

Buck also stated that the record cargo volumes seen in 1H15 were partly due to port congestion on the West Coast ports in the US, which had led shippers to shift to air freight to avoid delays. However, not that the labor issues have been resolved, many shippers are expected to go back to the less expensive mode of container shipments.