Stock Price Looks Full, But Overall Outlook For Hawaiian Holdings Is Paradise

Following the release of traffic statistics for May and updated guidance for the second quarter by Hawaiian Holdings, Inc. HA, Deutsche Bank commented that the share price is approaching full valuation. Accordingly, the firm downgraded the shares of the company.

Following the downgrade on Thursday, the stock shed 4.63 percent.

Raising 2Q EPS Guidance

Analysts Michael Linenberg, Catherine O'Brien and Doug Runte noted that the company raised its operating revenue per ASM guidance to 7.5–10.5 percent from 5.5–8.5 percent, attributing the positive view to the domestic demand strength. Specifically, the analysts believe the upside is due to buoyancy in the West Coast to/from Hawaii and modestly lower fuel price, with the company trimming the economic fuel cost per gallon forecast to $1.60–$1.70 from $1.65–$1.75.

Accordingly, Deutsche Bank raised its June quarter earnings per share estimate for Hawaiian Holdings to $1.50 from $1.30 compared to the consensus estimate of $1.42.

Price Target Lifted

Based on the higher earnings outlook, the firm raised its 12-month price target to $64 from $63, based on a P/E multiple of about 13. The firm noted that the company's shares usually trade between the majors and the low-cost carriers due to its unique characteristics and above-average growth potential.

The firm pointed out that the stock has been on a strong run over the past 12 months and was about 10 percent away from its revised price target, given that the overall backdrop is solid for the company.

Downgrading On Shares Approaching Full Valuation

"For that reason, we are of the view that the risk/reward for buying/initiating new positions in HA shares is less attractive relative to our other Buy-rated names," the firm added.

The firm downgraded shares of the company to Hold from Buy, with an upwardly revised price target of $64.