Merrill Lynch/BAM is upgrading
AirTran (
NYSE:AAI) to Buy from Underperform while raising their price tgt to $9 from $4.
According to the firm, the upgrade is due to an improved earnings outlook based on better-than-expected sales trends, especially in the ancillary area, that they believe will build as the year progresses and into 2010. In that regard, the firm is raising their 2009 diluted EPS estimate from $0.40 to $0.80 (vs. consensus of $1.06) and 2010 diluted EPS estimate from $0.50 to $0.95 (vs. consensus of $1.00). Furthermore, t
he 30% pullback in AAI’s share price since peaking a month ago represent what they think is an attractive entry-point for investors to purchase this high quality, profitable, low cost carrier.
Well-run, well-capitalized, low cost airlines, such as AirTran, typically outperform the sector in challenging economic environments such as the present. Furthermore, because AirTran is predominantly a domestic carrier, it is likely to incur less revenue pressures than carriers exposed to international markets where year-over-year comparisons are expected to be difficult.
Company off to a good start; anticipating profitable 2009
AirTran started 2009 off to a good start with a surprisingly good March quarter (i.e. profitable) despite the fact that the U.S. economy contracted 5.7% and the absence of Easter this year versus last.
Looking forward, Merrill Lynch is projecting profits in every quarter for the remainder of 2009. Disciplined capacity plans (down 3.8% for year), ample cash ($384 million unrestricted), modest CAPEX schedule, and manageable debt maturities give us comfort with respect to the balance sheet.
Notablecalls: Nice call by Merill. Will send the shares considerably higher. I'm guessing $6.40-$6.50 if the market holds today.
