Short Interest in U.S. Airline Stocks on the Rise (DAL, SAVE, UAL)

By and large, the short interest in U.S.-based airline stocks rose during the first two weeks of January. The number of shares sold short in Alaska Air Group

, Delta Air Lines

, JetBlue Airways

, Southwest Airlines

, Spirit Airlines

, and U.S. Airways

increased between the December 31 and January 15 settlement dates. The standout is United Continental

which saw the number of shares sold short dwindle during that time. American Airlines remains in bankruptcy, and news of a merger deal with U.S. Airways is expected within the next few weeks. Manufacturer Lockheed Martin

also saw short interest rise in January. But shares sold short in Boeing

declined, and that was before the 787 Dreamliner was grounded. The biggest percentage swings in short interest in the stocks of U.S. airlines between the December 31 and January 15 settlement dates happened to Delta Air Lines, Spirit Airlines and United Continental.

This Atlanta-based air transportation company saw short interest increase about 64 percent in early January to 13.09 million shares. That was the most shares sold short since September but represents less than two percent of the float, and days to cover is about one. In early January, Delta increased air fares and pursued an acquisition of bankrupt regional carrier Pinnacle Airlines. Delta currently has a market capitalization of about $12 billion and a price-to-earnings (P/E) ratio that is less than the industry average. The long-term earnings per share (EPS) growth forecast is more than 24 percent and the return on equity is more than 240 percent. Of the 15 analysts who follow the stock that were surveyed by Thomson/First Call, all but one recommend buying shares, five of them rating the stock at Strong Buy. Their mean price target, or where analysts expect the share price to go, is about 16 percent higher than the current share price. Shares have risen about 16 percent year to date and ended last week at a 52-week high. The stock has outperformed United Continental and the broader markets over the past six months.

Shares sold short in this Florida-based regional carrier jumped about 36 percent to about 1.43 million. That is the highest level of short interest since September, and it represents less than three percent of the float. Days to cover increased to more than three. This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $1.4 billion. Spirit Airlines announced new routes to Myrtle Beach in January. The company's return on equity is more than 22 percent, and the long-term EPS growth forecast is more than 25 percent. All but one of the 11 analysts polled recommend buying shares, with three of them rating the stock at Strong Buy. The mean price target, or where analysts expect the share price to go, represents more than 23 percent potential upside, relative to the current share price. That consensus target would be a new 52-week high. The share price is up about 10 percent year to date. But over the past six months, the stock has underperformed competitor JetBlue and the broader markets.

Short interest in the operator of United Airlines declined more than 14 percent to 22.82 million shares. That was the lowest level of short interest in a year, but represents about seven percent of the float. The average daily volume was the highest since August. In early January, Chicago-based United Continental debuted its 787 Dreamliner flights, hiked fares and faced a lawsuit for skirting sales taxes. The company has a market cap of about $8.5 billion. The long-term EPS growth forecast is almost 12 percent, but the return on equity is in negative territory, and its operating margin is less than the industry average. Ten of the 15 analysts surveyed recommend buying shares, but just one rates the stock at Underperform. They believe the shares have some room to run, as their mean price target is about 10 percent higher than the current share price, as well as a level the share price has not seen since late 2010. The share price has risen almost 33 percent over the past six months. In that time, the stock has underperformed Delta but outperformed the broader markets.