Imperial Capital Initiates Coverage On Hawaiian Air

Over the past ten years, Hawaiian Holdings, Inc. HA has undergone a dramatic route and fleet transformation and now appears “well positioned to reap the margin benefits of a balanced route network and growth opportunities ahead,” Imperial Capital’s Michael Derchin said in a report. He initiated coverage of the company with an Outperform rating and a price target of $58.

Having undergone a major route and fleet overhaul, Hawaiian Air now controls about 90 percent seat share between the Hawaiian Islands. Asia/Pacific now accounts for about 25 percent of the company’s revenues, while 50 percent of revenues come from the US mainland.

Robust Revenue Growth

Backed by the favorable underlying trends in each of these segments, Hawaiian Air is expected to generate industry-leading unit revenue growth in 2H16 and FY17. “Although the stock has significantly outperformed its peers over the last few years, HA remains undervalued, in our view, based on higher relative margins and strong growth prospects,” analyst Derchin commented.

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Attractive Pretax Margins

Derchin believes Hawaiian Air would generate pretax margins that are superior to the Big 3. The pretax margins estimates are at 17.9 percent for FY16 and at 15.0 percent for FY17. Hawaiian Air is expected to record a 0.5 percent increase in TRASM in FY16, while declines of 3.6 percent, 5.2 percent and 5.7 percent are estimated for Delta Air Lines, Inc. DAL, American Airlines Group Inc AAL and United Continental Holdings Inc UAL, respectively.

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