Hawaiian Holdings Holds 25% Return Potential, Deutsche Bank Says In Upgrade

Hawaiian Holdings, Inc. HA, the parent company of Hawaiian Airlines, reported better-than-expected bottom-line results in the second quarter. 

The Analyst

Deutsche Bank analyst Michael Linenberg upgraded Hawaiian Holdings from Hold to Buy and increased the price target from $40 to $45.

The Thesis

Apart from the earnings beat, Hawaiian Holdings is likely to have one of the higher profit margins in its sector this quarter despite the pretax margin slipping 5.9 points year-over-year, Linenberg said in the upgrade note. (See the analyst's track record here.) 

The airline's industry-leading five-year ROIC-WACC spread is a result of Hawaiian's focus on enhancing shareholder value, the analyst said.

Q2 revenue per available seat mile trends were decent, and the airline's capacity per available seat mile excluding fuel is on an upward trajectory, Linenberg said. 

The analyst expects the company to slow its capacity growth next year from 7.5 percent to 5.5 percent and aim for flattish CASM excluding fuel.

Deutsche Bank raised its full year EPS estimate from $4.65 to $5.25. Hawaiian deserves credit for its "antitrust-immunized" joint venture with Japan Airlines, Linenberg said. Deutsche also raised its fiscal 2019 EPS estimate from $5 to $5.35. 

The joint venture should receive approval before the end of the year, the analyst said. 

"Given that implies a total return of 25 percent based on the last close of $36.35 plus a 1.3-percent dividend yield, we are raising our rating on HA shares from Hold to Buy." 

Price Action

Hawaiian Holdings shares have shed about 8 percent year-to-date.

The stock was rallying 10.59 percent to $40.20 at the time of publication Wednesday. 

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