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3 Airliners Outside Of The 'Big Four' Worth Buying: McAdoo

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3 Airliners Outside Of The 'Big Four' Worth Buying: McAdoo
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In separate reports published Friday, Imperial Capital analyst Bob McAdoo identified three US airlines that could be attractive growth investments.

Analyst Bob McAdoo maintained an Outperform rating on Allegiant Travel Company (NASDAQ: ALGT), while raising the price target from $220 to $260.

Allegiant reported its 2Q15 results ahead of expectations. The company recorded revenues of $1.2bn, EBITDA of $382mn, and EPS of $9.55 for the latest 12 months ended June 30.

Allegiant's shares have performed better than its peers in recent months, since the company's business "remains largely insulated from greater airline sector capacity concerns" and the relative outperformance seems to be reflecting the company's "successes in new medium and large markets."

In the report Imperial Capital noted, "ALGT selects actively markets in which there is no direct competition from peers. We expect this to be an area of additional network growth over the next 24 months. Aided by lower fuel prices, new and now more profitable flying is expected to drive a meaningful improvement in free cash flow, of which we expect a significant portion to be returned to shareholders with buybacks and dividends."

McAdoo maintained an Outperform rating on Republic Airways Holdings Inc. (NASDAQ: RJET), with a price target of $17.

Republic Airways recorded revenues of $1.4bn, EBITDA of $408mn, and EPS of $1.33 for the latest 12 months ended June 30.

The company's shares have been highly volatile over the past few days as investors "attempt to handicap possible outcomes of ongoing pilot negotiations," McAdoo said, while adding that the company had recently indicated that "the stalemate has made it challenging to hire new pilots and even fly current schedules."

Although Republic Airways has pulled its previously issued guidance for this year, McAdoo said that work stoppage was unlikely and that the company had a strong existing business. Taking these into account the analyst recommended investors to "accumulate shares during this period of investor uncertainty."

Imperial Capital maintained an Outperform rating on Virgin America Inc (NASDAQ: VA), with a price target of $45.

Virgin America reported record 2Q results, handsomely beating the Street's and Imperial Capital's expectations. The company generated revenues of $1.5bn, EBITDA of $183mn, and EPS of $3.26 for the latest 12 months ended June 30.

McAdoo commented, "Second quarter results and management guidance suggest the company continues to attract a moderately upscale crowd that appreciates and is willing to pay a premium for its modern style and amenities, hence PRASM growth which outpaces legacy peers. We expect more favorable PRASM trends to continue relative to legacy peers as management indicated competitive capacity pressures should ease in late 2015."

Investor focus now seemed to be on PRASM growth, rather than earnings, which could result in the company garnering "significant interest" from airline investors, the report said, while adding, "We continue to view Virgin America as an attractive investment for small to mid-cap investors looking for exposure to the U.S. airline sector."

Latest Ratings for ALGT

DateFirmActionFromTo
Aug 2017Morgan StanleyMaintainsEqual-Weight
Jul 2017Evercore ISI GroupDowngradesOutperformIn-Line
Apr 2017Bank of AmericaDowngradesBuyNeutral

View More Analyst Ratings for ALGT
View the Latest Analyst Ratings

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