Imperial Capital Starts Virgin America (VA) at In-Line
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Imperial Capital initiates coverage on Virgin America (NASDAQ: VA) with a In-Line rating and a price target of $57.00.
Analyst Michael Derchin commented, "In April 2016, Alaska Air Group (ALK) announced an agreement to acquire Virgin America in an all-cash transaction for $57 per share, equating to 8.0x our 2017E TEV/EBITDAR. According to ALK management, it has an agreement in place with the Justice Department concerning the timing of its review and believes the merger will close in 4Q16. In a bidding war with JetBlue, ALK’s stronger balance sheet and VA’s strategic value were key factors in the decision to merge. VA provides a strong presence in key slot and gate-constrained markets that ALK was underexposed to in California – Los Angeles and San Francisco – and the East Coast – LaGuardia, JFK, Newark, and Washington Reagan."
"VA also brings a strong Silicon Valley frequent flier base that, combined with ALK’s brand recognition in the Pacific Northwest, is likely to result in a loyalty program that is the envy of its peers, in our view. Nonetheless, VA has its own set of issues that management must resolve post-merger, including different fleet types, a very competitive operation in Dallas Love Field, and stiff competition on the West Coast and transcontinental routes. The Department of Justice is expected to approve the merger by 4Q16. With only seven overlapping routes and the merged carrier likely to be a stronger competitor, anti-trust issues are minimal, in our view."
Shares of Virgin America closed at $53.20 yesterday.
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