Market Overview

Short Interest in Delta Air Lines Surges

Delta Air Lines (NYSE: DAL) had the only sizable upswing in short interest in the U.S. airline industry between the April 15 and April 30 settlement dates. The number of shares sold short in United Continental (NYSE: UAL) and U.S. Airways (NYSE: LCC) also increased somewhat. We take a closer look at these three below.

Short interest in JetBlue Airways (NASDAQ: JBLU) and Southwest Airlines (NYSE: LUV) remained essentially flat during the period. And Alaska Air Group (NYSE: ALK) and Spirit Airlines (NASDAQ: SAVE) saw their short interest decline somewhat.

Furthermore, in late April short sellers shied away from manufacturers Lockheed Martin (NYSE: LMT) and Boeing (NYSE: BA), as the latter's 787 Dreamliner prepared to resume flying after being grounded due to problems with its batteries.

Delta Air Lines

This Atlanta-based air transportation company saw short interest surge almost 54 percent in late April to 11.86 million shares. Though that was the highest number of shares sold short since mid-March, it was less than two percent of the float, and the average daily volume fell more than 18 percent from the previous period.

Investors were pleased with Delta's first-quarter report, though it warned of the impact of sequestration cuts on the current quarter. Its market capitalization is more than $15 billion, and the long-term earnings per share (EPS) growth forecast is more than 26 percent. The operating margin is better than the industry average.

Of the 15 analysts who follow the stock that were surveyed by Thomson/First Call, all but two 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 15 percent higher than the current share price.

The share price is more than 48 percent higher than at the beginning of the year and reached a new multiyear high last week. The stock has outperformed United Continental, U.S. Airways and the Dow Jones Industrial Average over the past six months.

United Continental

Short interest in the operator of United Airlines rose almost 13 percent to 26.03 million shares. That was the highest number of shares sold short so far this year. Almost eight percent of United Continental's shares are sold short. The days to cover increased from about four in the previous period to almost six.

United's narrower first-quarter net loss was smaller than estimated, but the company called the 787 grounding "disruptive." Its market cap is about $11 billion. The long-term EPS growth forecast is more than 61 percent, and the forward earnings multiple is less than the industry average price-to-earnings (P/E) ratio.

The consensus recommendation of analysts shifted from buying to holding United Continental shares in the past month. Analysts see little headroom for shares, as their mean price target is less than four percent higher than the current share price. However, that target would be a new multiyear high.

The share price has risen about 36 percent since the beginning of the year, despite pulling back a bit in the past week. Over the past six months, the stock has underperformed Delta but outperformed U.S. Airways and the broader markets.

U.S. Airways

Short interest in this Arizona-based air transport company ticked up about two percent to 47.43 million shares, taking back a little of the six percent decline in the previous period. That was the second highest number of shares sold short in at least a year, and it represented more than 29 percent of the float. The days to cover was less than seven.

The airline is expected to complete its merger with American in the third quarter, and it posted a first-quarter profit. The company has a market cap of almost $3 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.

Nine of the 12 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 late 2007.

U.S. Airways shares are trading about 27 percent higher year-to-date, and they ended the week at a new multiyear high. However, the stock has underperformed Southwest and Delta over the past six months, though it has outperformed the broader markets.

Posted-In: 787 Dreamliner alaska air American Airlines Boeing Delta Air Lines JetBlue AirwaysShort Ideas Trading Ideas Best of Benzinga

 

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