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Short Interest Soars In Delta Air, Southwest (DAL, LUV, UAL)

September 27, 2013 11:12 am
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Short Interest Soars In Delta Air, Southwest (DAL, LUV, UAL)

Among the in U.S.-based airlines, the largest upswings in short interest in early September, as the summer travel season came to a close, happened to Delta Air Lines (NYSE: DAL) and Southwest Airlines (NYSE: LUV).

The number of shares sold short in Allegiant Travel (NASDAQ: ALGT) and SkyWest (NASDAQ: SKYW) grew more modestly between the August 30 and September 13 settlement dates.

Alaska Air Group (NYSE: ALK), JetBlue Airways (NASDAQ: JBLU) and Republic Airways (NASDAQ: RJET) saw little change in their short interest in the period.

However, United Continental (NYSE: UAL) and U.S. Airways (NYSE: LCC) each saw a sizable drop in the number of its shares sold short. Short sellers also shied away from and Spirit Airlines (NASDAQ: SAVE) during the period.

Note that American Airlines remains in bankruptcy, its pending merger with U.S. Airways in question.

In addition, short interest in manufacturer Boeing (NYSE: BA) grew more than 30 percent in the first weeks of September, while that in Lockheed Martin (NYSE: LMT) declined somewhat.

Below is a quick look at how Delta Air Lines, Southwest Airlines and United Continental have fared and what analysts expect from them.

See also: Avon And Rite Aid Still Attracting Short Sellers

Delta Air Lines

This Atlanta-based air transportation company saw short interest more than double from about 18.61 million shares in the previous period to more than 43.74 million by mid-month. That was about five percent of the float, and by far the greatest number of shares sold short in the past year.

During the period, Delta was reinstated in the S&P 500. Its market capitalization is more than $19 billion, and the dividend yield is about 1.1 percent. The long-term earnings per share (EPS) growth forecast is more than 27 percent, and the operating margin is better than the industry average.

All but one of the 14 analysts surveyed by Thomson/First Call recommend buying shares of Delta, with five of them rating the stock at Strong Buy. Their mean price target, or where the analysts expect the share price to go, is more than 10 percent higher than the current share price.

The share price is more than 25 percent higher than a month ago and up more than 96 percent since the beginning of the year. The stock has not only outperformed competitors United Continental and U.S. Airways over the past six months, but the Dow Jones Industrial Average, as well.

Southwest Airlines

After three consecutive periods of decline, the number of shares sold short in this Dallas-based passenger airline operator surged about 94 percent to around 24.11 million. That represents more than three percent of the company’s float. Days to cover rose to more than four for the first time since May.

This carrier serves 97 destinations in 41 states and six destinations in the Caribbean and Central America. It has a market cap of more than $10 billion and a dividend yield of about 1.1 percent. Southwest also has a long-term EPS growth forecast is more than 33 percent.

The polled analysts on average recommend holding Southwest shares. They believe the shares have a little headroom, as their mean price target represents more than five percent potential upside, relative to the current share price. That consensus target would be a new multiyear high.

The share price is up almost 14 percent in the past month, as well as more than 40 percent higher than at the beginning of the year. Shares hit a new 52-week high earlier this week. Over the past six months, the stock has outperformed competitor JetBlue, as well as the broader markets.

United Continental

Short interest in the operator of United Airlines shrank about 24 percent to more than 14.46 million shares, ending a three-period streak of rising short interest. About four percent of United Continental’s shares were sold short. The days to cover dropped to less than three.

United Continental accidentally sold tickets for $5 on its website in September. Its market cap is more than $11 billion, but it does not offer a dividend. The long-term EPS growth forecast is more than 45 percent, though the operating margin is less than those of the peers mentioned below.

Half of the 14 analysts surveyed recommend buying shares, with only one analyst rating the stock at Underperform. Their mean price target is almost 11 percent higher than the current share price. However, that target is less than the 52-week high reached back in July.

The share price increased about 23 percent in the past month, regaining much of the steep drop off in August. It is up more than 40 percent year-to-date. Over the past six months, the stock has underperformed rivals Delta and U.S. Airways, as well as the S&P 500.

See also: Short Sellers Pile On Gold Fields And Other Gold Stocks

At the time of this writing, the author had no position in the mentioned equities.

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