Market Overview

Short Sellers Sticking with U.S. Airline Stocks (DAL, SAVE, LCC)

By and large, the short interest in U.S.-based airline stocks rose again during the first two weeks of March.

The number of shares sold short in Alaska Air Group (NYSE: ALK), Delta Air Lines (NYSE: DAL), JetBlue Airways (NASDAQ: JBLU), Spirit Airlines (NASDAQ: SAVE), United Continental (NYSE: UAL) and U.S. Airways (NYSE: LCC) grew between the February 28 and March 15 settlement dates.

The standout was Southwest Airlines (NYSE: LUV), which saw the number of shares sold short decline during that time.

AMR, parent of American Airlines, has been in bankruptcy since November 2011 and a merger with U.S. Airways is imminent. The resulting company will be called American Airlines Group.

Also, shares sold short in manufacturer Boeing (NYSE: BA) rose about 22 percent as the company tried to get its 787 Dreamliner off the ground again. And Lockheed Martin (NYSE: LMT) saw its short interest retreat more than six percent in early March.

For the second period in a row, the biggest percentage upswings in short interest in the stocks of U.S. airlines between the February 28 and March 15 settlement dates happened to Delta Air Lines, Spirit Airlines and U.S. Airways.

Delta Air Lines

This Atlanta-based air transportation company saw short interest rise more than 12 percent in early March to 15.32 million shares. That reversed a 20 percent drop in the previous period. The number of shares sold short at mid-March represents less than two percent of the float.

During the period, Delta announced additional flights to Los Angeles and to Brazil. Delta currently has a market capitalization of about $14 billion and a long-term earnings per share (EPS) growth forecast of more than 26 percent. The operating margin is greater than the industry average.

Of the 16 analysts who follow the stock that were surveyed by Thomson/First Call, all but one recommend buying shares, five of them rating the stock at Strong Buy. Their mean price target, or where the analysts expect the share price to go, is about seven percent higher than the current share price. The stock has not seen that level since 2008.

The share price has risen more than 35 percent since the beginning of the year and reached a new multiyear last week. The stock has outperformed United Continental and the broader markets over the past six months.

Spirit Airlines

Shares sold short in this Florida-based regional carrier rose more than 25 percent during the period to around 1.06 million, more than erasing the 15 percent drop in the previous period. That is the second highest number of shares sold short so far this year and represents more than two percent of the float.

This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $1.8 billion. In early March, Spirit Airlines added flights from Houston to Denver and Detroit. The company's return on equity is more than 20 percent, and the long-term EPS growth forecast is more than 22 percent. The operating margin is higher than the industry average.

All but one of the 11 analysts polled recommend buying shares, with three of them rating the stock at Strong Buy. The mean price target represents about seven percent potential upside, relative to the current share price. And that consensus target would be a new multiyear high.

The share price is up about 42 percent year to date, with more than half of that gain coming in the past month. Over the past six months, the stock has outperformed competitor JetBlue and the broader markets.

U.S. Airways

Short interest in this Arizona-based air transport company surged more than 34 percent to 42.68 million shares, the highest number of shares sold short in at least a year. The short interest rose more than 47 percent in the previous period. The mid-March figure represents more than 19 percent of the float.

In early March, the airline defended and finalized its impending merger with AMR. The company has a market cap of about $2.7 billion. The long-term EPS growth forecast is more than 64 percent, and the return on equity is more than 135 percent. The P/E ratio is much less than the industry average.

Twelve of the 13 analysts surveyed recommend buying shares, and none recommend selling the stock. Their mean price target is almost 18 percent higher than the current share price and would be a level the share price has not seen since 2007.

The share price is up about 24 percent in the past month, and shares are trading more than 113 percent higher than a year ago. The stock has outperformed Southwest and the broader markets over the past six months.

Posted-In: 787 Dreamliner alaska air American Airlines AMRNews Short Ideas M&A Trading Ideas Best of Benzinga

 

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