Market Overview

Short Sellers Pull Back From Delta, Republic Airways (ALGT, DAL, RJET)

After pulling back for most of the summer travel season, short sellers moved back into Las Vegas-based Allegiant Travel (NASDAQ: ALGT) in early August.

Short interest in U.S.-based airlines JetBlue Airways (NASDAQ: JBLU), Spirit Airlines (NASDAQ: SAVE), United Continental (NYSE: UAL) and U.S. Airways (NYSE: LCC) grew more modestly between the July 31 and August 15 settlement dates.

However, Delta Air Lines (NYSE: DAL) 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) and Southwest Airlines (NYSE: LUV) also declined during the period.

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

In addition, short interest in manufacturer Boeing (NYSE: BA) grew in the first weeks of August while in Lockheed Martin (NYSE: LMT) it shrank.

Below is a quick look at how Allegiant Travel, Delta Air Lines and Republic Airways have fared and what analysts expect from them.

See also: Short Sellers Increase Stakes in Toll Bros., M/I Homes

Allegiant Travel

The short interest in this travel company focused on vacation destinations increased more than 11 percent from the previous period to around 743,000 shares, ending three consecutive periods of falling short interest. About five percent of Allegiant's shares were sold short. Days to cover rose to more than seven.

During the period, Allegiant reported strong growth in passenger traffic for July. The company has a market capitalization of less than $2 billion. The long-term EPS growth forecast is more than 15 percent, and the return on equity is more than 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 some headroom for shares, as their mean price target is less than eight 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 in July and has yet to fully recover. The share price is still up more than 25 percent year-to-date. Over the past six months, the stock has outperformed competitor Southwest Airlines and the broader markets.

Delta Air Lines

This Atlanta-based air transportation company saw short interest retreat about 15 percent to more than 14.75 million shares, or less than two percent of the float. The number of shares sold short has fallen for four periods in a row, and short interest was the lowest since the end of April.

During the period, Delta launched a Los Angeles to San Francisco shuttle and also reported improved traffic in July. The market cap is more than $16 billion, and the dividend yield is about 1.2 percent. The long-term EPS growth forecast is almost 28 percent, and the operating margin is better than the industry average.

All but one of the 14 analysts surveyed recommend buying shares of Delta, with 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 23 percent higher than the current share price. That target would be a multiyear high.

The share price is more than 10 percent lower than a month ago but still up more than 56 percent since the beginning of the year. The stock has outperformed competitors United Continental and U.S. Airways, as well as the Dow Jones Industrial Average, over the past six months.

Republic Airways

Shares sold short in this Indianapolis-based regional carrier declined about 13 percent during the period to more than 875,000, which is less than two percent of the float. That was on top of a 17 percent drop in the previous period -- short interest has declined in four straight periods. Days to cover rose to more than two.

This operator of both Republic and Frontier airlines has a market cap of near $530 million. It reported a decline in passenger traffic in July. The company has a long-term EPS growth forecast of more than 11 percent. The price-to-earnings (P/E) ratio is lower than that of competitors Alaska Air and SkyWest.

Half of the six analysts polled recommend buying shares, with just one of them rating the stock at Underperform. Their mean price target suggests upside potential of about 15 percent, though that may be largely due to the recent pullback in the share price. That target is less than the multiyear high.

The share price reached that new multiyear high in early August, but it has retreated about 19 percent since then. It is still up more than 63 percent year-to-date. Over the past six months, the stock has outperformed Alaska Air and SkyWest, as well as the broader markets.

See also: First Solar, SunEdison See Surge In Short Interest

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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