Hawaiian Holdings: Zacks’ Bull of the Day Play

Hawaiian Holdings, Inc. (HASnapshot Report), the parent of Hawaiian Airlines, continues to cash in on strong travel demand and low fuel prices. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by 95% this year.

Hawaiian is Hawaii’s biggest airline. It has been serving the islands for 86 years and offers non-stop service to 11 gateway US cities.

It also has been expanding its international offerings, with service from Japan, South Korea, China, Australia, New Zealand, American Samoa and Tahiti.

Hawaiian also specializes in inter-island travel, with more than 160 daily flights between the Hawaiian Islands.

A Third Quarter Beat

On Oct 19, Hawaiian reported its third quarter results and beat the Zacks Consensus by 10 cents. Earnings were $1.29 compared to the consensus of $1.19.

Lower fuel prices and strong demand is making up for growth in industry capacity between the US west coast and Hawaii as well as the strength of the US dollar.

Adjusted pre-tax margin was 20% compared to just 12.6% in the prior year period.

The company is flush with cash. As of Sep 30, it had unrestricted cash, cash equivalents and short-term investments of $611 million.

New Lie-Flat Seats Coming Soon

With industry pressures to stand out in a crowded Hawaiian Islands market, Hawaiian is finally biting the bullet and will add luxury lie-flat seating to all 22 of its A330 aircraft. They are expected to be outfitted with the new seating arrangement by mid-2017.

The company is partnering with Optimares, an Italian manufacturer, to design the seats which will lie flat like a bed. They will come in pairs of two.

As a part of the new configuration, it will also add 28 additional Extra Comfort seats on each plane which has 36 inches of seat pitch, priority boarding at the gate, complimentary on-demand in-seat entertainment and a personal power outlet.

The new configuration will eliminate 16 seats, which is always a danger for the airlines which usually opt for more capacity over comfort.

The new planes will fly 278 passengers with 18 in Business/First Class, 68 in Extra Comfort and 192 in the Main Cabin. That is down from 40 in Extra Comfort and 236 in the Main Cabin.

The more prestigious seats will cost more money so Hawaiian is betting on more demand for the more luxurious seats.

Analysts Are Bullish

Analysts liked the earnings report and all of the company’s recent news. 3 estimates were raised in the last week pushing up the Zacks Consensus Estimate for 2015 to $3.03 from $2.87.

That is nearly double the 2014 earnings, which were $1.55.

Is It Too Late To Get In?

Shares keep hitting new all-time highs on the good news.

In the last year, they are up 105%.

With shares up that sharply, it seems too late to get on board.

But shares still have attractive valuations. They are trading with a forward P/E of 10.8. Hawaiian also has a Zacks Style Score for value of A, the top rating.

The airline sector is heating up again. After being the best performing industry in 2014 thanks to falling fuel prices, it looks like they’re going to end 2015 on another strong note.

For investors looking to get into the airline stocks, Hawaiian is definitely one to keep on the short list.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.


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