Rob wanted to "stimulate some discussion and additional
research." (Be careful what you ask for!)
There are 24 airlines companies in the
AAII StockInvestor-pro database.
7 of those are Market caps < $100MM --
too small.
8 of the remaining have quick ratios <
1.0 -- not enough cash
Data for the remaining 9 airlines are
included in the attached spreadsheets. Here are the
companies:
SKYWE |
SkyWest, Inc. |
MAIR |
Mesaba Holdings, Inc. |
ACAI |
Atlantic Coast Airlines H |
MESA |
Mesa Air Group, Inc. |
LUV |
Southwest Airlines Co. |
ALK |
Alaska Air Group, Inc. |
XJT |
ExpressJet Holdings, Inc. |
FRNT |
Frontier Airlines, Inc. |
JBLU |
JetBlue Airways
Corporati |
Both spreadsheets include spin controls
(arrow buttons) to move through the list of companies.
On the valuations sheet
(airlines_val_021129) you can view the price charts from the last 60
months: ExpressJet and JetBlue stand out as new enterprises without an
established track record (less than 2 years data). That same spreadsheet
shows the relative cost of the shares (price-to-earnings ratio, price-to-sales,
price-to-cashflow, price-to-freecashflow), the cash projections (quick and
current ratios), and the management performance (return on assests, return on
equity). All of these are described in this paper: http://www.bivio.com/bhgp/files/public_files/papers/Valuation_Concepts.doc
On the graphical data
sheet (airlines_graph_021129) you can view things like quarterly sales
growth, profits, gross margin, and cash-to-debt ratio. Only one company
shows increased profits over the year-ago quarter for all of the last four
quarters: ACAI. (JetBlue only has 7 quarters of data, but the last three
have shown strong increases over the year-before data.)
Southwest (LUV) has been held out as a
possible alternative to ACAI, so here are some comparisons between the
two:
- ACAI's sales have grown
steadily over 8 Q's while LUV's dropped vs year-ago numbers 3 of the last 4
Q's
- ACAI's profits are up
an average of 30% each of the last 4 Q's; LUV's profits average is down
20%.
- ACAI's gross margin is
flat with 8 Q's back; LUV's is down 7%.
- ACAI's cash-to-debt
ratio is 3.2; LUV's is 1.1.
Some valuations comparisons (most recent
data for cash strength; last 12 months data for price and
effectiveness):
|
ACAI |
LUV |
|
Cost/share |
P/earnings |
$13.1 |
$49.8 |
P/sales |
$0.71 |
$2.37 |
P/cashflow |
$9.4 |
$21.9 |
P/free cashflow |
$9.9 |
No
FCF |
|
Cash
Strength |
Quick ratio |
2.5 |
1.6 |
Current ratio |
2.6 |
1.6 |
|
Management
Effectiveness |
Return on Assets |
7.8% |
2.9% |
Return on Equity |
15.8% |
6.3% |
With LUV you pay significantly more per share for each dollar of earnings,
sales, and cashflow (and LUV shows no free cashflow at all in the last 12
months). ACAI shows a full year more operating cash on hand by
either reckoning, perhaps a key to any company's weathering the next 12 months;
ACAI's ROA and ROE are both 2 1/2 times that of LUV.
So, Rob, here's your "additional research!" Too bad we missed the 20%
runup just after our Dec. 3rd meeting. Despite that, ACAI still looks
(to me) to be priced at a bargain. Maybe, as Nirmal suggests, we will see
another "10% off" sale from the current price of $12.15. (That would be a
price of $11.00 or less.)
I think this looks like a good stock for BHGP. At about $500M the
marketcap fills a hole in our chart (between $90M and $1400M), and a growing
airline seems a nice compliment for Moody's in our Business Services
holdings. Please look at the historic valuation and performance data in
the spreadsheet reports, look up any other data you can, and cast an opinion on
ACAI.
After January's meeting BHGP will be sitting on $2700 cash for
investment. My suggestion is to purchase $1000 of ACAI if it hits
$11 (even if it's before January 7th); without a strong consensus now
we can go over the numbers again at the next meeting.
Kindly,
Mike
--> I have posted this text (sans attachments) on the Fool here:
I would prefer a
threaded discussion of ACAI's merits
and/or shortcomings for future reference.
Thanks!
________________
Mike Overstreet
mike414@attbi.com