Market Overview

Short Interest in U.S. Airline Stocks Dwindles (DAL, SAVE, LCC)

By and large, the short interest in U.S.-based airline stocks dwindled during the latter two weeks of January.

The number of shares sold short in Alaska Air Group (NYSE: ALK), JetBlue Airways (NASDAQ: JBLU), Southwest Airlines (NYSE: LUV), Spirit Airlines (NASDAQ: SAVE), United Continental (NYSE: UAL) and U.S. Airways (NYSE: LCC) fell between the January 15 and January 31 settlement dates.

The standout is Delta Air Lines (NYSE: DAL), which saw the number of shares sold short surge during that time.

American Airlines remains in bankruptcy, and news a merger deal with U.S. Airways is expected soon.

Manufacturer Lockheed Martin (NYSE: LMT) also saw short interest decline marginally in late January. But shares sold short in Boeing (NYSE: BA) jumped more than 16 percent after the 787 Dreamliner was grounded.

The biggest percentage swings in short interest in the stocks of U.S. airlines between the January 15 and January 31 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 increase about 20 percent in late January to 15.71 million shares. That was the most shares sold short in a year, but it represents less than two percent of the float. Days to cover is still about one.

In late January, Delta posted a lower fourth-quarter profit, was in talks to buy up to 30 new jets and announced it would introduce Sky Deck terraces in airport lounges.

Delta currently has a market capitalization of more than $12 billion and a price-to-earnings (P/E) ratio that is less than the industry average. The long-term earnings per share (EPS) growth forecast is more than 21 percent.

Of the 15 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 more than 16 percent higher than the current share price. The stock has not seen that level since 2008.

Shares have risen about 20 percent year to date and reached a new 52-week high 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 fell about nine percent to around 1.30 million. That represents less than three percent of the float. Days to cover is about three.

This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $1.4 billion. In late January, Spirit Airlines announced a number of new routes, and it also appointed a new board member.

The company's return on equity is more than 20 percent, and the long-term EPS growth forecast is more than 24 percent. The P/E ratio is less 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, or where analysts expect the share price to go, represents about 25 percent potential upside, relative to the current share price. That consensus target would be a new 52-week high.

The share price is up more than eight percent year to date but still a bit below where shares were trading a year ago. Over the past six months, the stock has underperformed competitor JetBlue and the broader markets.

U.S. Airways

Short interest in this Arizona-based air transport company declined more than 17 percent to 19.53 million shares. That was the lowest level of short interest since last April, but represents about 12 percent of the float. The average daily volume was the highest since September.

In late January, U.S. Airways continued to negotiate a merger with AMR, parent of American Airlines. It also posted a record annual profit for 2012, and doubling its fourth-quarter earnings.

The company has a market cap of more than $2 billion. The long-term EPS growth forecast is about 70 percent, and the return on equity is about 135 percent. The P/E ratio is much less than the industry average.

Twelve of the 14 analysts surveyed recommend buying shares, and none recommend selling the stock. They believe the shares have plenty of room to run, as their mean price target is about 25 percent higher than the current share price, a level the share price has not seen since 2008.

The share price is more than 57 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 AMR BoeingLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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