Like many airlines this year, shares of Hawaiian Holdings have soared this year. But given favorable industry tailwinds, strong growth projections, solid earnings momentum and reasonable valuation, the stock can continue flying even higher.
Hawaiian Holdings is the parent of Hawaiian Airlines, which offers non-stop service to Hawaii from 11 U.S. gateway cities, along with service from Japan, South Korea, China, Australia, New Zealand, American Samoa and Tahiti. Hawaiian also provides approximately 160 jet flights daily between the Hawaiian Islands.
Third Quarter Results
Hawaiian Holdings posted better-than-expected Q3 results on October 21. Adjusted earnings per share came in at $0.79, beating the Zacks Consensus Estimate by 5 cents. It was a 14% increase over the same quarter last year.
Total revenue rose 7% to $639.5 million, ahead of the consensus of $636.0 million. Operating revenue per available seat mile (RASM) rose 4.6% while operating cost per ASM (CASM) declined slightly.
The load factor improved from 83.2% to 84.0% as the number of revenue passenger miles grew faster than the number of available seat miles.
Following strong Q3 results, analysts unanimously raised their estimates for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).
The 2014 Zacks Consensus Estimate is now $1.52, up from $1.37 before the report. The 2015 consensus is currently $1.83, up from $1.56 over the same period. Based on these estimates, analysts are projecting 72% EPS growth for Hawaiian this year and 20% growth next year.
You can see that consensus estimates have steadily marched higher all year for the company as it has delivered 4 consecutive positive earnings surprises:
And Hawaiian Holdings isn’t the only airline with strong earnings momentum. The ‘Transportation – Airline’ industry currently ranks in the top 11% of all industries based on positive estimate revisions. This is due in part to strong demand for air travel amid an improving U.S. economy, as well as lower fuel costs due to falling oil prices.
Hawaiian does hedge some of its fuel needs, primarily through heating oil puts and swaps. But it should still benefit overall from falling oil prices.
Like many airlines, shares of Hawaiian Holdings have soared this year. But due to rising earnings estimates, shares trade at just 10x 12-month forward earnings, which is in-line with industry median. Its price to sales ratio is just 0.5 and well below the industry median of 0.9.
The Bottom Line
With favorable industry tailwinds, strong growth projections, rising earnings estimates and reasonable valuation, Hawaiian Holdings can continue flying higher.