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.
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