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Hawaiian Holdings (HA) Downgraded To 'Hold' By Deutsche Bank On Yen And Capacity Headwinds

 January 30, 2013 03:59 PM

(By Balaseshan) Deutsche Bank analyst Michael Linenberg downgraded rating of Hawaiian Holdings Inc. (NASDAQ: HA) to "Hold" from "Buy" on yen and capacity headwinds.

The brokerage cut price target of the holding company for Hawaiian Airlines Inc. to $7 from $10. DB reduced its 2013 EPS estimate to $0.90 from $1.55 and its 2014 estimate to $1.20 from $1.70.

Linenberg lowered his 2013 EPS estimate as he thinks Hawaiian's margins are likely to remain under pressure for at least first half of 2013 due to: yen weakness; excess supply in several key markets; and the launch of several new markets.

[Related -Airline Companies Lose Following Losses From Fuel- Hedging]

While the analyst thinks Hawaiian will continue to remain profitable for 2013, his new 12 month price target of $7 derived from reduced EPS forecast implies only 7% upside for HA shares from last close of $6.54. As such, he believes the shares no longer warrant a "Buy" rating, hence the change to "Hold".

Hawaiian reported a break even December quarter result ex-specials, which came in below the analyst's EPS estimate and consensus of $0.10. Underlying this result was a 1.9% operating margin ex-specials, which fell short of his 2.5% forecast and represents a 5.4 point year-over-year decline. However, an accounting change tied to its frequent flier program caused a negative $0.08 per share impact.

Linenberg said performance was mixed across Hawaiian's network with North America to Hawaii, inter island, and new Asian markets under pressure while its Australia/New Zealand and some of its same-store Asian markets fared better.

[Related -Hawaiian Holdings Inc. (Nasdaq: HA) Q2 2011 Earnings Preview : Rising Fuel Cost And Japanese Earthquake May Weigh On Earnings]

The company's North America -- Hawaii network continued to face significant competitive capacity additions, as industry supply increased 13% with Hawaiian contributing only 3 percentage points of that growth, the analyst noted.

Linenberg said this portion of the network saw PRASM decrease about 10% due mostly to lower yields as loads remained "relatively flat". Hawaiian's international flying, which now represents 32% of its passenger revenues, saw an 11.8% reduction in PRASM, with 7.7 points of the decrease driven by its new markets.

The analyst reduced his 2014 estimate as he thinks some of the current issues will linger into next year. Overall, he is still anticipating a reasonably good 2014 as evidenced by his 5.6% operating margin (up from 5.1% in 2013).

HA is trading down 13.15% at $5.68 on Wednesday.

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