Deutsche Bank Upgrades Hawaiian Holdings (HA) to Buy; Analyst Favors Domestics
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Deutsche Bank upgraded Hawaiian Holdings (NASDAQ: HA) from Hold to Buy with a price target of $41. Analyst Michael Linenberg said Brexit creates uncertainly for the big three, but he likes domestic names.
"With the International Air Transport Association (IATA) warning about a 'permanent downward shift' in UK passenger volumes of 3% - 5% by 2020 following the Brexit vote, US airlines with exposure to the UK – AAL, DAL and UAL – not surprisingly incurred share declines of 8% - 11% on Friday (no airline matched the 22.5% decline in IAG shares). While we continue to believe that London will remain a major O&D market for the foreseeable future, the vote to leave the EU does create uncertainty with respect to near-term demand for air travel to/from the UK as well as how the UK will feature in a revised EU – US Open Skies accord," said Linenberg.
"Given that the UK market for 2016 represents 6.3% of American’s capacity, 5.4% of United’s and 2.8% of Delta’s (6.7% if you give DAL credit for half of Virgin Atlantic’s US – UK capacity), we see potential downside EPS risk, and therefore, maintain our Hold ratings on the shares of the Big 3. We continue to favor domestic names such as LUV, SAVE and JBLU which should gain from a favorable leisure/discretionary travel outlook," continued the analyst.
Linenberg added, "Buy Hawaiian Airlines (HA) given very favorable risk-reward Since peaking in mid-April at just above $50 per share, HA shares have tumbled almost one-third to $35.62 (vs. the S&P 500 down ~3%) as it became less than likely that the airline would benefit from a merger (Alaska – Virgin America M&A announcement spurred investor interest in HA shares) and on fears that Southwest would be entering the West Coast – Hawaii market. While one cannot rule out the former, it appears the latter is a non-issue for now based on recent commentary by Southwest Airline."
Shares of Hawaiian Holdings closed at $35.62 yesterday.
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