Republic Airways Holdings Inc. (NASDAQ:RJET) has cratered by more than 56% today after the company announced weak second quarter preliminary results after trading ceased on Friday, in light of regulatory changes and a pilot labor dispute that has resulted in 4% fewer block hours than previously expected. Earnings per share are expected to fall in the $0.08 to $0.10 range on the back of $338 to $340 million in revenues. This would lead to pretax margins of 2.5% to 3.0%. Regulatory hurdles include the Federal Aviation Administration (FAA)’s decision to raise pilot qualification standards for first officers, who will now need an Airline Transport Pilot (ATP) certificate, which requires 1,500 hours of training as opposed to the 250 hours required previously by the commercial pilot certificate that first officers formerly needed. This has reduced pilot productivity by 5% to 7%, striking another blow to the pilot shortage arising from the company’s dispute with International Brotherhood of Teamsters (IBT), the union representative of Republic’s pilots. In light of this development, Republic has started to warn some of the biggest U.S. airlines that their regional service might be disrupted. Republic Airways Holdings Inc. (NASDAQ:RJET) is scheduled to release its financial results for the second trimester on August 7.
Hedge funds were generally pessimistic about the company during the first quarter. Among the funds that we track, 15 had an aggregate investment of $183.40 million in the company, compared to 23 funds with $216.73 million in shares at the end of the previous quarter. Republic Airways Holdings Inc. (NASDAQ:RJET)’s stock fell by about 5% during this period, accounting for only a small percentage of the reduced holdings.
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Insider trading is another useful indicator in judging a company’s future prospects. While no insider purchases have been detected in Republic Airways Holdings Inc. (NASDAQ:RJET) this year, prominent insider sales include that by CEO Keith Bryan, who has disposed of some 215,000 shares this year, and by Vice President Joseph Allman, who has sold more than 27,000 shares so far in 2015. However, it should be noted that insider sales are not as strong an indicator as insider purchases.
Now let us take a closer look at how smart money has been trading Republic Airways Holdings Inc. (NASDAQ:RJET).
How have hedgies been trading Republic Airways Holdings Inc. (NASDAQ:RJET)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long in this stock, compared to 23 at the end of the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably.
Of the funds tracked by Insider Monkey, Stelliam Investment Management, led by Ross Margolies, holds the number one position in Republic Airways Holdings Inc. (NASDAQ:RJET). Stelliam Investment Management has a $65.3 million position in the stock, comprising 1.5% of its 13F portfolio. On Stelliam Investment Management’s heels is Corsair Capital Management, led by Jay Petschek and Steven Major, which holds a $64 million position; the fund has 6% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Stephen V. Raneri‘s LionEye Capital Management, Richard L. Haydon’s Yield Capital Partners (Y/Cap Management), and Jim Simons‘ Renaissance Technologies.
Since Republic Airways Holdings Inc. (NASDAQ:RJET) has faced declining sentiment from the smart money, we can see that there lies a certain “tier” of funds that slashed their entire stakes in the first trimester. Intriguingly, Chuck Royce’s Royce & Associates cut the largest investment of all the hedgies followed by Insider Monkey, totaling close to $7.5 million in stock. Richard Driehaus’ fund, Driehaus Capital, also dumped its shares, about $4.2 million worth. These moves are interesting, as total hedge fund interest fell by eight funds in the first quarter.
In light of the new regulations by the Federal Aviation Administration (FAA) and the negative hedge fund sentiment surrounding Republic Airways Holdings Inc. (NASDAQ:RJET), we do not recommend buying the stock at this time.