Mesa Air Group: 5 Reasons Why Imperial Capital Is Bullish On The Regional Airline

Mesa Air Group, Inc. MESA has eliminated many of the risks that once threatened its business and has five catalysts that make it a buy, Imperial Capital said in a bullish initiation. 

The Analyst

Imperial Capital analyst Michael Derchin initiated coverage of Mesa Air Group with an Outperform rating and $18 price target.

The Thesis

Mesa generated revenue of $661 million and earnings per share of $1.36 in the last 12 months, Derchin said in the initiation note. (See his track record here.)

The shares likely to trade at similar levels as competitor SkyWest, Inc. SKYW based on the following factors, the analyst said: 

Long-term capacity agreements with American Airlines Group Inc. AAL and United Continental Holdings Inc. UAL.

• The focus on large regional jets.
• A low-cost business model and operational standards.
• Strong potential growth.
• New pilot contracts.

The airliner has essentially eliminated tail risk, the primary cause of its bakruptcy in 2010, Derchin said.

“MESA’s business prior to bankruptcy was predicated on operating lease terms that exceeded corresponding capacity purchase agreements, resulting in negative equity if the contract was not renewed. MESA was also mostly comprised on 50-seat jets, which started becoming obsolete in favor of larger 70-76 jets around the period,” he said. 

Some additional growth opportunities include extended contracts with existing and new partners and the company’s entrance into the cargo business, according to Imperial Capital. 

Price Action

Mesa Air Group shares were up 0.19 percent at $15.85 at the close Wednesday. 

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