Market Overview

Short Sellers Retreat from Delta Air Lines and Spirit Airlines

Short sellers seem to have had their fill of U.S. Airways (NYSE: LCC) during the first two weeks of April, 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 retreated more than six percent, taking back some of the 16 percent gain in the previous period.

The big moves in short interest in the U.S. airline sector happened to Delta Air Lines (NYSE: DAL) and Spirit Airlines (NASDAQ: SAVE). They both saw double-digit percentage plunges in the number of shares sold short between the March 28 and April 15 settlement dates. Alaska Air Group (NYSE: ALK) also saw a sizable drop in short interest, and we have a look at these three below.

Short interest in JetBlue Airways (NASDAQ: JBLU), Southwest Airlines (NYSE: LUV) and United Continental (NYSE: UAL) also increased somewhat.

Furthermore, shares sold short in manufacturer Boeing (NYSE: BA) grew about one percent, even as it looked like the 787 Dreamliner would soon resume flying. And Lockheed Martin (NYSE: LMT) saw its short interest retreat less than two percent in early April.

Alaska Air

The number of shares sold short in this Seattle-based regional airline pulled back less than seven percent to 5.69 million shares, which represented about eight percent of the total float. That ended a four-period streak of rising short interest. Days to cover fell to less than seven.

In early April, Alaska Air began new routes between Seattle and Salt Lake City. The company has a market capitalization of about $4.3 billion. The long-term earnings per share (EPS) growth forecast is more than 14 percent, and the return on equity is more than 24 percent. The price-to-earnings (P/E) ratio is less than the industry average.

Nine of the 13 analysts who follow the stock that were surveyed by Thomson/First Call recommend buying shares, but two rate the stock at Underperform. Their mean price target, or where analysts expect the share price to go, is about 11 percent higher than the current share price. That would be a new multiyear high.

The share price has retreated about five percent from the 52-week high reached at the end of March, but shares are still up approximately 38 percent year-to-date. The stock has outperformed JetBlue and Southwest, as well as the S&P 500, over the past six months.

Delta Air Lines

This Atlanta-based air transportation company saw short interest retreat almost 20 percent in early April to 7.71 million shares, which was less than one percent of the float. The number of shares sold short was half of what it was a month earlier, and the average daily volume was the highest it has been in a year.

During the period, Delta began a $229 million renovation of its terminal at Los Angeles International airport. Delta currently has a market cap of more than $14 billion and a long-term EPS growth forecast of more than 26 percent. Its P/E ratio is less than the industry average, and its operating margin is greater than the industry average.

Of the 15 analysts surveyed, all but two recommend buying shares, five of them rating the stock at Strong Buy. They believe the stock has some room to run as their mean price target is more than 12 percent higher than the current share price. The stock has not seen that level since 2007.

The share price is more than 37 percent higher than at the beginning of the year and rose more than 12 percent in the past 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 declined more than 19 percent during the period to around 1.07 million, the second lowest level of short interest so far this year. That represented almost two percent of the float. Days to cover remained steady at about 1.6.

This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $1.8 billion. In early April, Spirit Airlines reported strong year-to-date growth in revenue passenger miles, available seat miles and load factor. 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 13 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 44 percent year to date, though it has hit resistance above $26 in the past month. Over the past six months, the stock has outperformed competitors Alaska Air and JetBlue, as well as the broader markets.

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

 

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