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TheStreet Open House

Airlines Stocks Fly on AMR-US Airways Merger

NEW YORK (TheStreet) -- Airline stocks are flying on the news AMR Corporation (AAMRQ) and US Airways' (LCC) proposed merger has been cleared for landing. United Continental (UAL), Delta Air Lines (DAL), JetBlue (JBLU), Alaska Air Group (ALK) and Southwest Airlines (LUV) popped on the news.

Shares of AMR Corporation, listed over-the-counter, gained 18% to $11.23, while US Airways dropped 1.2% to $22.99.

By early afternoon, JetBlue soared 4.6% to $8.05, United Continental rose 2.6% to $36.21, Delta was up 1.9% to $27.99, Alaska Air climbed 2% to $74.79 and SouthWest added 1.1% to $18.

The AMR-US Airways deal was stalled after the U.S. Department of Justice opposed it on the grounds a merger would reduce competition, increase airfare prices and create a monopoly in the industry.

Under the agreement, the two airlines are required to divest 52 slot pairs at Washington Reagan National Airport and 17 slot pairs at New York LaGuardia Airport.

TheStreet Ratings team rates US Airways Group Inc as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate US Airways Group Inc (LCC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, attractive valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, LCC's share price has jumped by 75.37%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LCC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • LCC's revenue growth trails the industry average of 21.4%. Since the same quarter one year prior, revenues slightly increased by 9.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 561.76% to $225.00 million when compared to the same quarter last year. In addition, US AIRWAYS GROUP INC has also vastly surpassed the industry average cash flow growth rate of 107.88%.
  • US AIRWAYS GROUP INC's earnings per share declined by 16.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, US AIRWAYS GROUP INC increased its bottom line by earning $3.28 versus $0.30 in the prior year. This year, the market expects an improvement in earnings ($3.52 versus $3.28).

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