Market Overview

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

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

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

The standouts are Delta Air Lines (NYSE: DAL) and Spirit Airlines (NASDAQ: SAVE), which saw the number of shares sold short dwindle during that time.

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

Also, shares sold short in manufacturer Boeing (NYSE: BA) rose almost six percent; this was after the 787 Dreamliner was grounded. And Lockheed Martin (NYSE: LMT) saw its short interest jump more than 18 percent in later February.

The biggest percentage swings in short interest in the stocks of U.S. airlines between the February 15 and February 28 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 drop about 20 percent in late February to 13.65 million shares. That ended four straight periods in which the number of shares sold short increased. The end-of-February figure represents less than two percent of the float.

During the period, Delta topped Fortune's list of the world's most admired companies in the industry. Delta currently has a market capitalization of almost $14 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 26 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 less than seven percent higher than the current share price. The stock has not seen that level since 2008.

Shares have risen more than 33 percent year-to-date and reached a new multiyear high today. 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 more than 15 percent during the period to around 1.06 million. That is the lowest number of shares sold short so far this year and represents more than two percent of the float. The days to cover has fallen to about two.

This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $1.8 billion. In late February, Spirit Airlines reported better-than-expected earnings and revenue numbers. The company's return on equity is more than 20 percent, and the long-term EPS growth forecast is more than 22 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 only about two percent potential upside, relative to the current share price. That consensus target would be a new multiyear high, though.

The share price is up more than 34 percent year to date, much of that gain coming in the past two weeks. 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 47 percent to 31.79 million shares. That is the highest number of shares sold short in at least a year, and it represents more than 19 percent of the float. The days to cover has risen to more than three.

In late February, the airline defended its impending merger on Capitol Hill, and flight attendants ratified a new contract. The company has a market cap of more than $2 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.

Eleven of the 13 analysts surveyed recommend buying shares, and none recommend selling the stock. Their mean price target is about 16 percent higher than the current share price and would be a level the share price has not seen since 2007.

The share price has jumped more than 13 percent in the past month, and shares are trading more than 124 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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