Seeking Alpha
Long/short equity, growth at reasonable price, research analyst, deep value
Profile| Send Message|
( followers)  

Summary

  • Hawaiian Holdings reported Q2 '14 earnings.
  • Earnings confirm original thesis that cost savings would drive earnings higher.
  • The improved earnings were anticipated to drive the stock to $13.50 and now much higher.

Despite another quarter of solid earnings, Hawaiian Holdings (NASDAQ:HA) continues to trade at a cheap valuation. The situation isn't exactly unique to this airline with the sector generally trading at multiples of earnings symbolic of an industry that struggled for decades to generate any profits.

For Q2 '14, Hawaiian Holdings earned an adjusted $0.35 compared to only $0.24 in the prior year period. The 46% earnings increase year-over-year is incredible for a stock trading at roughly 8x forward earnings. Like the rest of the industry, the airline is seeing limited revenue growth and strong cost controls led to the large earnings gains. For the quarter, revenue grew 7.8% over the prior year due to strong gains in ancillary revenue of over 31%. Costs only grew 5.6% due to the largest expense item, jet fuel, growing just 2.9%.

Back in January, it was presented that Hawaiian Airlines could quickly jump to $13.50 to reach the earnings multiple of other airline stocks. Well, the stock quickly hit that level in early March. Analysts forecast the stock earning $1.63 in 2015. If the stock traded at 15x that estimate, it would quickly trade at $24.45. If it wasn't an airline, is there any reason that it shouldn't trade at that level? The answer is a resound NO! The stock has been stuck in the $13 to $15 range and no real reason exists for the stock to not break out to the upside any time soon.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

Source: Update: Hawaiian Holdings Q2 '14 Earnings

Check out Seeking Alpha’s new Earnings Center »