NEW US Airways stock target $100

[Elevation]

US Equity Research
J.P. Morgan Securities Inc.

U.S. Airlines

LCC Price Target Now $100; New Estimates & Ratings

Click here to view PDF file of airline report http://pull.JPMorgan-Research.com/p/681-17...es_05_02_06.pdf

Click here to view PDF file of Flight Bag http://pull.JPMorgan-Research.com/p/681-46...tbag_050106.pdf

North American Credit Research
Mark Streeter, CFA
(1-212) 834-5086
[email protected]
Tarek Hamid
(1-212) 834-5468
[email protected]

Recovery to continue in 2007 – Consensus (and admittedly, some of our earlier) estimates imply recovery grinds to a halt in 2007. Doubtful, in our view, barring an economic or airline-specific shock. Yes, the industry will be growing again next year, but even coupled with the least revenue improvement in 4 years RASM is likely to rise 5% vs. 2006’s forecasted 9.5%. We expect continued ex-fuel EBIT recovery in 2007, a view seemingly not yet shared by consensus.

· Our 2007 estimates now better reflect fuel & RASM reality – $2.05 jet fuel and 5% industry RASM, with carriers more tightly packed around the RASM mean than in 2006. Ex-fuel EBIT improvement about 40% below 2006 levels for most, showing even a little RASM can go a long way. But don’t forget to model profit sharing. CAL labor intercepts roughly 25%, more than any other.

· Ratings changes – Frontier & JetBlue downgraded, Alaska and Southwest upgraded. Legacy profits historically bode poorly for discounters, see Air South, Eastwind, Kiwi, Vanguard et al. Legacy competitive behavior was decidedly unfriendly in 1997, and 2007 should be no different, in our view. Only LUV warrants an Overweight, based on above-consensus 2007 view and now-palatable valuation.

· $100 for LCC – US Airways likely to earn somewhere between $3.15 and $11.20 next year given various fuel & RASM outcomes. 2007 estimate now $8.65 from an earlier $6.55. Probability-weighted outcomes and 10x-14x 2007 earnings imply share potential of $84 to $118. Our June 2007 $100 target is based on 6.5x 2007 EV/EBITDAR discounted back 30% to mid-year.

Airline Team

Jamie Baker
(1-212) 622-6713
mailto:[email protected]

Pakhi Eder
(1-212) 622-6387
mailto[email protected]

 

[FWAAA]

Jamie Baker clearly could not work in the airline industry - there's no way he'd pass the required drug tests.

$100/share?

I want what he's smokin.

 

[dc3fanatic]

Jamie Baker clearly could not work in the airline industry - there's no way he'd pass the required drug tests.

$100/share?

I want what he's smokin.

me too.

 

[SoftLanding]

US Equity Research
J.P. Morgan Securities Inc.

U.S. Airlines

LCC Price Target Now $100; New Estimates & Ratings

Well, if the legacy carriers are making tons of money, shouldn't the rest of the pack also keep their heads above water? Think back to 1996-1999 period. Isn't that when everybody wants to start an airline? And to mention Air South etc. that is laughable...


Well, first we must get by the $82 mark...


SoftLanding

 

[fanlube]

Don't know much about stocks and the like but who would of thought that being almost dead twice the stock would be where it is at today!

 

[nycbusdriver]

Almost hit $47 today!

 

[OldGuyinPA]

Remember ...Steinberg from the eighties..He thought $87 was possible.

The stock immediately tanked and sank ..and sank and eventually sunk.

This guy must be a relative of somebody. It's all smoke and mirrors.

 

[jerseyfinn]

A $100 target seems mind boggeling. But I would not want to own any airline's stock in this current market -- just too many things going on.

The interesting remark in the report is that fuel prices will determine profitability and not capacity.

I'll settle for US holding its ground as it begins to implement its new business plan.

Barry

 

[700UW]

Calyon Securities analyst Ray Neidl said US Air's earnings outlook, strong revenue figures from Continental and an upward revision to Standard & Poor's Ratings Services' outlook for Alaska Air bolstered the sector.

Neidl raised his price target for US Air to $49 from $41 a share and lowered his expectations for US Air's first-quarter loss to 20 cents from 55 cents per share. The airline is scheduled to report earnings on May 9.

 

[TheWatcher]

How much fuel has US hedged?

 

[SoftLanding]

How much fuel has US hedged?

I believe we went into the 1st qt-06 with around 27% hedged.

Hope we added some more in mid-Feb when oil dropped to the $60 area.

We'll find out May-09.


SoftLanding

 

[javaboy]

· $100 for LCC – US Airways likely to earn somewhere between $3.15 and $11.20 next year given various fuel & RASM outcomes. 2007 estimate now $8.65 from an earlier $6.55. Probability-weighted outcomes and 10x-14x 2007 earnings imply share potential of $84 to $118. Our June 2007 $100 target is based on 6.5x 2007 EV/EBITDAR discounted back 30% to mid-year.

Airline Team

Jamie Baker
(1-212) 622-6713
mailto:[email protected]

Pakhi Eder
(1-212) 622-6387
mailto[email protected]

3.15 and 11.20 next year??? nice range. why not just say 0 to 100 ? as an analyst your supposed to use your math models to NARROW the range, then as WEEKLY earnings are posted REFINE those estimates. your range should be in PENNIES not DoLLARS. This is why people lose money and then financial instutions are sued due to lack of due diligence.

If LCC could not be profitable at 70/BBl how can they (or any other airline) be proftiable at 100/bbl? other than a direct lock in step rate increase (like Fedex, UPS, Union Pacific and other Transportation companies do) when fuel costs rise they add a fuel surcharge on and guess what PROFITS ROLL IN (see FDX).

 

[PITbull]

Heck, even the US postage, that just raised stamps to $.39 in Feb, is now saying there will be another increase to $.42 just because of the gas prices.

Anyone who just isn't putting it quite together yet has got to see how inflationary gas hikes will be to the over all economy, specifically the effects of long-term high fuel prices.

And the Markets WILL GO DOWN ACROSS THE BOARD, except for energy stocks that can't carry the entire market.

As far as airline stocks, unless your day trading, stay clear of the entire sector.

My prediction, we will go into recession immediately after the elections in NOV.

The Republicans will be scrambling around trying to depress the reality of the effects of allowing the "free market" gas-o-holic companies to go "unchecked" with no price caps.

My entire 401K is in a "money market" holding tank. My cash is in bank CDs.

Cash is king, and I'm not taking any risks cause its too hard to earn.

 

[RowUnderDCA]

My prediction, we will go into recession immediately after the elections in NOV.

...
My entire 401K is in a "money market" holding tank. My cash is in bank CDs.

Cash is king, and I'm not taking any risks cause its too hard to earn.

GOLD

 

[luvthe9]

For Those Who Thought Buying Shares in US Airways Was a Dud Investment . . .

It looks like Boston-based hedge fund PAR Capital Management invested its money wisely when it pledged $100 million last year to help US Airways (LCC:NYSE - commentary - research - Cramer's Take) complete a merger with America West. Since the completion of the merger in September, the stock has more than doubled. PAR Capital continues to add to its position, and recently bought 1.75 million shares from another participant in the restructuring, ACE Aviation Holdings.

"The stock has been doing great, and the merger has done better than what people thought," says Roger King, airlines analyst with CreditSights, a credit research firm. "Load factors are increasing, so you have more people per plane, and fares are rising, which brings more money per plane. The whole sector has improved and the equity of all airlines is up in general," he says. PAR Capital, U.S. Airways' largest shareholder, now owns 18.6% of the airline.

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