Analyst high on Hawaiian Air future
A Bear Stearns & Co. analyst who initiated coverage of Hawaiian Airlines' parent this week says that the company's stock price could double in the next year if it collects a $90 million legal award from Mesa Air Group Inc. or if Mesa's interisland carrier go! leaves the interisland market.
However, Kim Zotter cautioned in a research report Monday that Hawaiian Holdings Inc.'s shares are fairly valued now at $5 and that she sees a low probability of the legal award or go!s exit occurring in the next 12 months.
In the meantime, she has given the stock a "peer perform" rating.
"We believe Hawaiian Airlines holds the potential to be a major turnaround story, should all the pieces fall in place, given its cost-cutting initiatives, growth opportunities and market-leading position," Zotter said. "Further, should the interisland's third wheel (Mesa's go!) decide to pack up and go home, the shares could see significant upside, in our judgment."
Mesa has put up a $90 million bond to cover damages, interest and legal fees for Hawaiian while it appeals a federal Bankruptcy Court ruling to the U.S. District Court. Bankruptcy Judge Robert Faris ruled on Oct. 30 that Mesa used confidential information gathered as a potential investor during Hawaiian's bankruptcy to gain a competitive advantage when entering the Hawaii market in June 2006.
Hawaiian Holdings' shares closed up 7 cents yesterday to $5.13 on the American Stock Exchange.
Zotter, who initiated coverage of Hawaiian at Monday's closing price of $5.06, said she expects the shares to move in line for now with the airline industry group and noted that high fuel prices, economic uncertainty and increased competition will hamper the shares near term.
She said the stock should gain momentum through the first half of 2008 as year-to-year comparisons become easier and more clarity develops on go!'s longevity.
Zotter said Hawaiian's recently announced agreement with Airbus to acquire up to 24 new widebodies will replenish Hawaiian's older aircraft as needed, bring lower unit costs, expand passenger and cargo capacity, and open up new market opportunities with the planes' longer range.