Market Overview

Short Sellers Return To Delta, Flee U.S. Airways (DAL, LCC, UAL)

Among the in U.S.-based airlines, the largest upswings in short interest in late August happened to Delta Air Lines (NYSE: DAL) and United Continental (NYSE: UAL), as the summer travel season began to wind down.

The number of shares sold short in Alaska Air Group (NYSE: ALK), Allegiant Travel (NASDAQ: ALGT), Republic Airways (NASDAQ: RJET) and SkyWest (NASDAQ: SKYW) grew more modestly between the August 15 and August 30 settlement dates.

JetBlue Airways (NASDAQ: JBLU) saw little change in its short interest in the period.

However, U.S. Airways (NYSE: LCC) saw a sizable drop in the number of its shares sold short. Short sellers also shied away from Southwest Airlines (NYSE: LUV) and Spirit Airlines (NASDAQ: SAVE) during the period.

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

In addition, short interest in manufacturers Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT) grew in the final weeks of August.

Below is a quick look at how Delta Air Lines, United Continental and U.S. Airways have fared and what analysts expect from them.

See also: Wild Short Interest Swings In Barnes & Noble and Rite Aid

Delta Air Lines

This Atlanta-based air transportation company saw short interest jump about 26 percent to more than 18.61 million shares, or more than two percent of the float. That ended a four-period slide in the number of shares sold short. However, the days to cover remained less than two.

During the period, Delta announced service from Seattle to Seoul and Hong Kong. The market capitalization is almost $19 billion, and the dividend yield is about 1.1 percent. The long-term earnings per share (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 by Thomson/First Call 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 11 percent higher than the current share price. That target would be a multiyear high.

The share price is more than 13 percent higher than a month ago and up more than 81 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.

United Continental

Short interest in the operator of United Airlines rose more than 20 percent to around 19.07 million shares. That was the greatest number of shares sold short since May. More than five percent of United Continental's shares were sold short. The days to cover increased to more than three.

United Continental sought approval for nonstop service to Chengdu, China, in August. Its market cap is more than $11 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 price-to-earnings (P/E) ratio.

The consensus recommendation of analysts has been to hold United Continental shares for the past three months. Analysts see some headroom for shares though, as their mean price target is more than nine percent higher than the current share price. Note, that target is less than the 52-week high.

The share price pulled back more than 22 percent in August and has yet to fully recover. Yet it is still up about 31 percent year-to-date. Over the past six months, the stock has underperformed rivals Delta and U.S. Airways, as well as the broader markets.

U.S. Airways

Short interest in this Arizona-based air transport company fell about 39 percent to more than 27.15 million shares, which was the lowest number of shares sold short since February. But note that it represented more than 14 percent of the total float. The days to cover was about five.

A trial date for the challenge to its merger with American Airlines was set for November. The company has a market cap of more than $3 billion. The long-term EPS growth forecast is only about three percent, but the return on equity is more than 67 percent. The P/E ratio is much less than the industry average.

Of the 10 analysts surveyed, six recommend buying shares, which is down from eight a month ago. Their mean price target is more than 19 percent higher than the current share price. That consensus target would be a level the stock has not seen since late 2007.

U.S. Airways shares are trading more than seven percent higher than a month ago, but still have not recovered from a more than 16 percent drop in August. While the stock has outperformed the broader markets over the past six months, it has underperformed competitors Southwest and Delta.

See also: Short Interest Surges in Real Goods Solar and SunEdison

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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