The bottom line of the story, I said, is that Republic is a low-cost regional carrier, has won 100% of its contracts to fly the Embraer (ERJ) 170 Jet (the one that looks like a 737) and has been doing well. Eric, Mr. Oil Trader, tried to hit me on what happens when oil prices soar. I tried to explain that oil costs are passed along to the airlines; Republic is merely an outsourcer that has fixed fee contracts.
Now for a blog exta: My original source on this, Ethan Mcafee of Ramsey Asset Management, loves it as much here as he did when it was lower. He notes that it trades at about 8-times 2008 expected earnings, with earnings last quarter growing at 22%.
He says historically it has traded at 10-12 times earnings "when airlines do not have bankruptcy worries." Now that everyone is coming out of bankruptcy, I would expect multiple expansion. RJET is growing its business much faster than any of the other players, so I would think it should trade at a higher valuation multiple than its peers. He continues:
So, maybe 12-times 2008 earnings, which would be up 50% from here -- and that assumes they sign no new contracts....Last year they signed deals that would increase their long-term EPS by 50%. So, if you assume they signed deals over the next year that would increase their long-term EPS by about 20%, that would get you closer to 70% upside.
That's all assuming everything goes as planned, which nothing ever does, but at least now you know the bull case. (I love fighting Eric.)
RJET 1-yr chart:
