Market Overview

Short Sellers Continue to Shy Away from Southwest Airlines (LUV, SAVE, UAL)

As the summer travel season got underway, Southwest Airlines (NYSE: LUV), Spirit Airlines (NASDAQ: SAVE) and United Continental (NYSE: UAL) saw sizable swings in short interest.

Other players in the U.S. airline industry that saw increasing short interest between the June 14 and June 28 settlement dates include JetBlue Airways (NASDAQ: JBLU) and U.S. Airways (NYSE: LCC).

But the number of shares sold short during the period in Allegiant Travel (NASDAQ: ALGT), Alaska Air Group (NYSE: ALK) and Delta Air Lines (NYSE: DAL) declined.

Note that American Airlines remains in bankruptcy, pending completion of its merger with U.S. Airways.

In addition, in late June short interest in aircraft manufacturers Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT) rose marginally.

Southwest Airlines

Shares sold short in this Dallas-based passenger airline operator declined more than 34 percent during the period to around 15.99 million, the third straight period of shrinking short interest. The mid-June figure represents more than two percent of the total float. The days to cover dropped to about two.

This carrier serves 97 destinations in 41 states and six in the Caribbean and Central America. It has a market capitalization of more than $9 billion. A computer glitch caused flight delays and cancellations in June. The company's long-term earnings per share (EPS) growth forecast is more than 36 percent.

Seven of the 15 analysts following the stock that were surveyed by Thomson/First Call recommend buying Southwest shares. The analysts believe the shares have headroom as their mean price target represents about 13 percent potential upside. That consensus target would be a new 52-week high.

The share price is down more than four percent in the past month, but it is still about 27 percent higher year-to-date. Over the past six months, the stock has outperformed competitors JetBlue and U.S. Airways, as well as the Dow Jones Industrial Average and the S&P 500.

Spirit Airlines

Shares sold short in this Florida-based regional carrier declined about 12 percent during the period to around 1.29 million, largely erasing a 16 percent rise in the previous period. The number of shares sold short was about two percent of the float. Days to cover fell to about one.

This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $2 billion. In ordered 20 new aircraft from Airbus during the period. The company's return on equity is more than 24 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 12 analysts polled recommend buying shares, with four of them rating the stock at Strong Buy. But the mean price target represents less than four percent potential upside, relative to the current share price. That consensus target would be a new multiyear high, though.

The share price has risen more than six percent in the past month, and it is up more than 86 percent since the beginning of the year. Over the past six months, the stock has outperformed competitor JetBlue and the broader markets.

United Continental

After the short interest in this operator of United Airlines plunged about 49 percent in the previous period, it recovered more than 16 percent to 10.96 million shares in late June. Less than four percent of United Continental's shares were sold short. The days to cover grew to more than four.

United Airlines ordered 35 new jets from Airbus in June. The company has a market cap of more than $10 billion, but it does not offer a dividend. 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.

For the past two months, the consensus recommendation of analysts has been to hold United Continental shares. Analysts see some headroom for shares, though, as their mean price target is more than 10 percent higher than the current share price. But that target is less than the 52-week high from last May.

The share price has pulled back less than four percent in the past month, but it is still up more than 27 percent year-to-date. Over the past six months, the stock has underperformed Delta but outperformed U.S. Airways and the broader markets.

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

 

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