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Here's Why Investors Should Retain Hawaiian Holdings (HA) Now

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·3 min read
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The uptick in air-travel demand (particularly on the leisure front) bodes well for Hawaiian Holdings HA. However, escalated fuel costs, a primary headwind, are limiting bottom-line growth.

Factors Favoring HA

The gradual improvement in air-travel demand is a huge boon for Hawaiian Holdings, which currently carries a Zacks Rank #3 (Hold). Owing to this tailwind, the carrier upped its revenue outlook for second-quarter 2022.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HA expects total revenues to decline 4.5-7.5% from the level acquired in second-quarter 2019. The same is compared favorably with the previous estimation of a decrease of around 8-12%. The improved guidance is owing to an uptick in domestic yields.

Backed by reduced maintenance costs and improvements in other areas, the carrier now anticipates costs per available seat mile or CASM excluding fuel and non-recurring items to increase approximately 15.5-17.5% in the second quarter of 2022 from the second-quarter 2019 level. Earlier expectation was in the 16.5-19.5% range. Adjusted EBITDA for the second quarter is estimated to be ($20)-$30 million compared with the previous expectation of ($50)-$10 million.

With improving air-travel demand, the carrier is making commendable efforts to expand its network. Moreover, HA's record with respect to punctuality is very impressive. The carrier's efforts to reduce its debt load are encouraging as well. In 2021, the airline repaid $440.9 million of future debt obligations.

Key Risks

Escalating fuel costs pose a threat to Hawaiian Holdings’ bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia's invasion of Ukraine. Average fuel cost per gallon (economic) surged 78% to $2.83 in the March quarter of 2022. Fuel price per gallon is expected to increase further to $3.76 in the June quarter.

Hawaiian Holdings trimmed its flight schedule for the second quarter of 2022 and expects capacity for the same period to decline in the band of 11.5-13.5% from the second-quarter 2019 actuals. This decrease was due to the delay in fully restoring its Japan network. Gallons of jet fuel consumed are expected to fall 14.5-17.5% from the second-quarter 2019 actuals as a result of less flight operations.

Moreover, HA withdrew its full-year guidance due to continued uncertainty surrounding the timing of the full resumption of its international network .

Stocks to Consider

Some better-ranked stocks in the broader Zacks Transportation sector are Ryder System R, C.H. Robinson Worldwide CHRW and GATX Corporation GATX

Ryder has a trailing four-quarter surprise of 48.2%, on average, with its earnings surpassing the Zacks Consensus Estimate in all the last four quarters. R is benefiting from improving economic and freight conditions in the United States.

Revenues in all segments grew (on higher rental revenues, new business and favorable pricing) in first-quarter 2022. R currently carries a Zacks Rank #2 (Buy).

The expected long-term (three-to-five years) earnings per share (EPS) growth rate for C.H. Robinson is pegged at 9%. Improving freight market conditions are aiding CHRW.

In first-quarter 2022, the top line surged 41.8%, owing to favorable truckload pricing for customers and handsome profits in ocean freight. CHRW currently sports a Zacks Rank of 1.

GATX has a trailing-four quarter surprise of 40.1%, on average, with its earnings beating the Zacks Consensus Estimate in all the last four quarters.

The gradual improvement in the North American railcar leasing market boosts GATX. GATX currently has a Zacks Rank of 2.


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