Is US Airways Group, Inc. (LCC) a Good Investment?

Page 1 of 2

US Airways Group, Inc. (NYSE:LCC) is one of the top airline operators and the consolidation of its industry appears to be continuing. U.S. Airways has been in negotiations to merge with American Airlines, giving both companies better footing, including giving U.S. Airways a stronger international presence, and the ability to compete with United Continental Holdings Inc (NYSE:UAL). The possible merger has been in the works for almost a year and early synergy estimates put additional revenue expectations at $1 billion and non-union cost savings at $500 million. Is this finally a turning point for U.S. Airways and the airline industry in general?

Driving the industry is an expected rise in air travel, which should continue to be helped by capacity cuts, where U.S. Airways’ revenues are expected to be up 4% in 2013. One of U.S. Airways’ advantages is its ability to hedge fuel cost increases. Fuel costs were up 38% in 2011, but are only expected to be up 2% in 2012 for the airline company; Q4 financials are expected to come in on Jan 21st, giving us the ability to gauge this estimated figure. Maintenance cost declines should also help boost margins, where U.S. Airways plans to retire many of its older 737s for new Airbus airliners.

setting up a hedge fund

The key benefit for U.S. Airways is its ability to generate sufficient cash to fund operations. The airline company has upwards of $2.4 billion in cash, but a long-term debt load of $4.5 billion is not particularly inviting. Still, on a LT debt-to-cash basis, U.S. Airways is around 1.8x, while United (2.0x) and Delta Air Lines, Inc. (NYSE:DAL) (4.0x) are worse off.

From a valuation standpoint, U.S. Airways also trades on the cheap end of the industry at only 4x earnings and 0.2x sales. We are also encouraged by the company’s top-of-the-line expected earnings growth. U.S. Airways is expected to grow long-term EPS at close to 70% annually over the next half-decade (statistics via FinViz analyst estimates). Billionaire George Soros is bullish on this airline stock, upping his stake over 350% last quarter (check out George Soros’ newest picks).

Delta, meanwhile, is one of the largest airlines by market-cap trading at over $10 billion. The airline expects revenues to be up 4% in 2012 on the back of a 1% rise in passenger load factor. One of Delta’s recent initiatives is the purchase of an oil refinery – United was reported to be considering a similar purchase. Next to U.S. Airways, Delta trades the cheapest in the industry at only 7x earnings and 0.3x sales. Another key driver of Delta is its merger with Northwest, providing the company with cost synergies and added revenue lines. Ken Griffin – founder of Citadel Investment Group – upped his stake by a significant amount last quarter (see how much here).

What about the rest of U.S. Airways’ competitors?

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!