Market Overview

Short Interest in U.S. Airways Continues to Rise Ahead of Impending Merger

Short sellers continued to bet on U.S. Airways (NYSE: LCC) during the final two weeks of March, ahead of its impending merger with AMR, parent of American Airlines, which has been in bankruptcy since November 2011. Short interest in U.S. Airways grew about 16 percent.

However, short interest in Delta Air Lines (NYSE: DAL), plunged between the March 15 and March 28 settlement dates, and short sellers also shied away from Southwest Airlines (NYSE: LUV).

Otherwise, things were fairly quiet for the rest of the sector. The number of shares sold short in Alaska Air Group (NYSE: ALK) and JetBlue Airways (NASDAQ: JBLU) essentially remained flat during that time. And Spirit Airlines (NASDAQ: SAVE) and United Continental (NYSE: UAL) saw the number of shares sold short decline somewhat in those two weeks.

Furthermore, shares sold short in manufacturer Boeing (NYSE: BA) fell about 26 percent, as it looked like the 787 Dreamliner would resume flying. And Lockheed Martin (NYSE: LMT) saw its short interest retreat more than 10 percent in late March.

Delta Air Lines

This Atlanta-based air transportation company saw short interest retreat more than 37 percent in late March to 9.60 million shares. That was the smallest number of shares sold short so far this year, and it represents a little more than one percent of the total float.

During the period, Delta was reported to be considering purchasing up to 20 wide-body aircraft. The stock was also a Jim Cramer pick. Delta currently has a market capitalization of almost $13 billion and a long-term earnings per share (EPS) growth forecast of more than 26 percent. Its P/E ratio is less than those of competitors JetBlue and Southwest Airlines.

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

The share price is more than 24 percent higher than at the beginning of the year and has risen more than nine percent in the past week. The stock has outperformed United Continental and the broader markets over the past six months.

Southwest Airlines

Shares sold short in this Dallas-based regional airline declined more than eight percent during the period to around 17.32 million. That was the second period in a row of waning short interest. The shares sold short represented more than two percent of the float. Days to cover was more than two.

This operator of around 700 aircraft has a market cap of about $9.5 billion and offers a dividend yield near 0.3%. In late March, Southwest launched a new ad campaign that downplays the humor it is known for. The company's long-term EPS growth forecast is more than 29 percent. The operating margin is higher than the industry average.

Eight of the 17 analysts polled recommend buying shares, with just two of them rating the stock at Underperform or Sell. The mean price target represents more than eight percent potential upside, relative to the current share price. And that consensus target would be a new multiyear high.

The share price is up more than 24 percent year to date, as well as almost 50 percent higher than six months ago. The stock has outperformed competitor JetBlue and the broader markets over that six months.

U.S. Airways

Short interest in this Tempe, Arizona-based air transport company rose more than 16 percent to 49.56 million shares, the highest number of shares sold short in at least a year. And the short interest rose more than 34 percent in the previous period. The end-of-March figure represents more than 30 percent of the float.

In late March, a New York judge approved the merger with American Airlines. The company has a market cap of about $2.6 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 about 18 percent higher than the current share price and would be a level the share price has not seen since 2007.

The share price has retreated more than eight percent from a recent multiyear high, but shares are still up almost 13 percent year-to-date. But the stock has underperformed Delta and Southwest over the past six months.

Posted-In: 787 Dreamliner alaska air American Airlines AMR Boeing Delta Air LinesShort Ideas Trading Ideas Best of Benzinga

 

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