Southwest, United Continental Buck Short Interest Trend (LUV, SAVE, UAL)

As the summer travel season got underway,

and

saw sizable declines in short interest. But other players in the U.S. airline industry saw increasing short interest between the May 31 and June 14 settlement dates. These include

,

,

,

and

.

had the largest upswing in the number of shares sold short. Note that American Airlines remains in bankruptcy, pending completion of its merger with U.S. Airways. In addition, in early June many short sellers continued to move on manufacturer

. But the number of

shares sold short dwindled.

Shares sold short in this Dallas-based passenger airline operator declined more than 16 percent during the period to around 24.45 million, the third straight period of shrinking short interest. The mid-June figure represents more than three percent of the total float. The days to cover remains around three. This carrier serves 97 destinations in 41 states and six in the Caribbean and Central America. It has a market capitalization of more than $9 billion. In June, it warned of revenue weakness in the current quarter. The company's long-term earnings per share (EPS) growth forecast is more than 36 percent. Seven of the 15 analysts following the stock that were surveyed by Thomson/First Call recommend buying Southwest shares. But analysts believe the shares have headroom as their mean price target represents more than 15 percent potential upside. That consensus target would be a new 52-week high. The share price is down more than eight percent in the past month, but it is still more than 24 percent higher year-to-date. Over the past six months, the stock has outperformed competitors JetBlue and U.S. Airways, as well as the Dow Jones Industrial Average and the S&P 500.

Shares sold short in this Florida-based regional carrier rose about 16 percent during the period to around 1.29 million, the highest level of short interest since the end of March. The number of shares sold short was more than two percent of the float. Days to cover remained at about two. This ultra-low-cost carrier with its main hub in Ft. Lauderdale has a market cap of more than $2 billion. Analysts are looking for strong EPS and revenue growth for the current quarter. The company's return on equity is more than 24 percent, and the long-term EPS growth forecast is more than 22 percent. The operating margin is higher than the industry average. All but one of the 12 analysts polled recommend buying shares, with four of them rating the stock at Strong Buy. The mean price target represents more than 14 percent potential upside, relative to the current share price. And that consensus target would be a new multiyear high. The share price pulled back more than six percent from a recent 52-week high, and it is up about 74 percent since the beginning of the year. Over the past six months, the stock has outperformed competitor JetBlue and the broader markets.

Short interest in the operator of United Airlines plunged about 49 percent to 10.96 million shares. That was the smallest number of shares sold short in the past year. A little more than three percent of United Continental's shares were sold short. The days to cover dropped to less than three. United Continental said in June that its traffic had declined in May. Its market cap is more than $10 billion, but it does not offer a dividend. The long-term EPS growth forecast is more than 61 percent, and the forward earnings multiple is less than the industry average price-to-earnings (P/E) ratio. The consensus recommendation of analysts has been to hold United Continental shares for the past two months. Analysts see some headroom for shares, as their mean price target is more than 10 percent higher than the current share price. And that target would be a new multiyear high. The share price has pulled back more than seven percent in the past month, but it is still up more than 29 percent year-to-date. Over the past six months, the stock has underperformed Delta but outperformed U.S. Airways and the broader markets.