UPDATE: Bank of America Upgrades Republic Airways on Valuation

In a report published Thursday, Bank of America analyst Glenn D. Engel upgraded the rating on

from Underperform to Neutral, and reiterated the $10.00 price target. In the report, Bank of America noted, “Having dropped more than 20% YTD, RJET now trades less than 5x 2015E pretax earnings, a 50% discount to closest peer SKYW. We maintain our $10 price objective, but raise our RJET rating to Neutral from Underperform. RJET pilots rejected a tentative agreement that would have positioned the carrier to both preserve the integrity of its schedule and position the carrier for modest growth. However, the contract would have also boosted pay so rejection will result in higher EPS (we raise 2014E to $1.10 from $0.95) in short run, but lower long-term. Once current orders run out in 2015, we expect RJET to generate around $4/share of FCF. "With less growth to fund, RJET also needs less liquidity, enabling the carrier to repurchase $50mn of converts this summer. Nevertheless, in the long run RJET must buy planes to replace fleet and maintain earnings stream, and we don't believe RJET has significant sustainable FCF.” Republic Airways closed on Wednesday at $8.23.