Airline companies are performing better than expected as earnings from both Southwest Airlines Co (NYSE:LUV) and JetBlue Airways Corp (NASDAQ:JBLU) topped estimates. As a result, S&P Capital IQ boosted its price objective on the two airline stocks by $8 and 3 respectively. Both the stocks are also trading in the Green following the results.
As far as Southwest Airlines, Corridore boosted his price target from $50 to $58 based on an enterprise value to EBITDAR multiple of 8.5X his 2017 EPS estimate, above the peer average of about 7X. The analyst thinks that this is warranted citing the company’s track record of 44 straight years of profitability. He believes that the company could likely achieve rapid growth in revenue and expects the company offsetting cost pressures by focusing on productivity and revenue management.
Corridore maintained his Buy rating on Southwest Airlines shares. He noted that the company’s earnings of 75 cents a share for the fourth quarter were five cents above the Capital IQ consensus.
“We trim our ’17 EPS estimate to $3.76 from $3.84 and start ’18 at $4.55. We are encouraged by unit revenue trends, and see LUV offsetting cost pressures with productivity and revenue management, the analyst told in his research note.
Similarly, for JetBlue, Corridore lifted his one-year price tag from $27 to $30. This is based on an enterprise value to EBITDAR multiple of 8.3X his 2017 estimate, above the peer average of 7X. This reflected the likely rapid revenue growth than rivals in addition to multiple expansion from the group citing improving unit revenue trends.
In his research note, the analyst told his clients that “We trim our ’17 EPS estimate to $1.98 from $2.05 and start ’18 at $2.10. JBLU Q4 adjusted EPS of $0.55 vs. $0.56 beat our $0.46 estimate on revenues in line with expectations.”
At time of writing this, JBLU traded up 3.17 percent while LUV surged 4.33 percent.