Market Overview

Short Sellers Return to United Continental (ALGT, RJET, UAL)

After pulling back early in the summer travel season, short sellers are moved back into United Continental (NYSE: UAL) as July came to a close.

Short interest in U.S.-based airlines Delta Air Lines (NYSE: DAL), JetBlue Airways (NASDAQ: JBLU) and Spirit Airlines (NASDAQ: SAVE) grew more modestly between the July 15 and July 31 settlement dates.

However, Allegiant Travel (NASDAQ: ALGT) and Republic Airways (NASDAQ: RJET) saw sizable drops in the numbers of their shares sold short.

The short interest in Alaska Air Group (NYSE: ALK), SkyWest (NASDAQ: SKYW), Southwest Airlines (NYSE: LUV) and U.S. Airways (NYSE: LCC) also declined during the period.

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

In addition, short interest in manufacturer Boeing (NYSE: BA) fell in late July while in Lockheed Martin (NYSE: LMT) it increased.

Here is a quick look at how Allegiant Travel, Republic Airways and United Continental have fared and what analysts expect from them.

See also: Meritage Homes, NVR See Big Short Interest Swings

Allegiant Travel

The short interest in this Las Vegas-based travel company fell more than 22 percent from the previous period to around 667,000 shares. That was the lowest number of shares sold short in at least a year. More than four percent of Allegiant's shares were sold short. The days to cover fell to less than four.

Revenue rose in the second quarter, but Allegiant fell short of earnings estimates. The company has a market capitalization of less than $2 billion. The long-term EPS growth forecast is more than 21 percent, and the return on equity is almost 22 percent. The operating margin is greater than the industry average.

For the past three months, the consensus recommendation of analysts surveyed by Thomson/First Call has been to hold Allegiant shares. Analysts see little headroom for shares, as their mean price target is less than three percent higher than the current share price. That target is less than the recent 52-week high.

The share price pulled back about nine percent following the second-quarter report and has yet to fully recover. The share price is still up more than 29 percent year-to-date. Over the past six months, the stock has outperformed competitor Southwest Airlines and the broader markets.

Republic Airways

Shares sold short in this Indianapolis-based regional carrier declined about 17 percent during the period to more than 875,000. That was less than two percent of the float, and the lowest level of short interest in the past year. The days to cover fell to less than two for the first time since April.

This operator of both Republic and Frontier airlines has a market cap of near $620 million. In late July, it reported a preliminary deal to sell Frontier, and it beat second-quarter EPS estimates. Its long-term EPS growth forecast is more than 11 percent. The price-to-earnings (P/E) ratio is lower than that of competitors SkyWest and Alaska Air.

Half of the six analysts polled recommend buying shares, with just one of them rating the stock at Underperform. Yet, the mean price target is only marginally higher than the current share price, meaning the analysts see little upside potential at this time.

The share price reached a new multiyear high last week but has pulled back about nine percent since then. It has risen more than 37 percent in the past six months. In that time, the stock has outperformed the competitors mentioned above, as well as the broader markets.

See also: Republic Airways Holdings Flight Attendants Approve New Contract

United Continental

Short interest in the operator of United Airlines rose almost 27 percent to 15.43 million shares. That was the largest number of shares sold short since the end-of-May settlement date. More than four percent of United Continental's shares were sold short. The days to cover remained at more than four.

Lower costs helped boost United Continental 's second-quarter earnings. Its market cap is about $12 billion, but it does not offer a dividend. The long-term EPS growth forecast is more than 59 percent, and the forward earnings multiple is less than the industry average P/E ratio. The return on equity is in the red, though.

The consensus recommendation of analysts is to hold United Continental shares, though more of them recommend buying than rate the stock at Underperform. Analysts see a little headroom for shares, as their mean price target is almost five percent higher than the current share price.

Note that the share price has pulled back less than four percent from a recent multiyear high, though it is still up more than 39 percent year-to-date. Over the past six months, the stock has underperformed competitor Delta but outperformed the broader markets.

At the time of this writing, the author had no position in the mentioned equities.

Posted-In: alaska air American Airlines Boeing Delta Air Lines JetBlue Airways Lockheed MartinShort Ideas Trading Ideas Best of Benzinga

 

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