Hawaiian Holdings, Inc. (HA)

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Hawaiian Holdings (HA)

Enterprise Value = $2.008 billion

Operating Income = $513.76 million

EV/Operating Income = 3.91x

Earnings Yield = 9%

Price/Revenue = .82x

Debt/Equity = 60%

Debt/EBITDA = .81x

The Company

Hawaiian Holdings is an airline with a focus on . . . Hawaii. Airlines are an out of favor industry as discussed in my Alaska Airlines post. Hawaiian has a niche focus on air travel between the Hawaiian Islands and the United States/Australia/New Zealand/Asia. They also offer flights within the Hawaiian Islands.

Sentiment

Hawaiian Airline’s growth was celebrated by Wall Street from 2013 to 2016 when the stock advanced from $5.45 a share to a peak of $60 at the end of 2016. Since the peak, the stock has fallen apart and declined by 28%. The stock has been under pressure since Southwest announced that they going to compete and send flights to the Hawaiian Islands. The market is concerned that Southwest will eat into Hawaiian’s market share while also adding more price competition.

My take

With a $2 billion enterprise value and $513 million in operating income, Hawaiian Holdings is the smallest of American airlines. This is an extremely attractive feature. The airline industry is currently in a state of consolidation, as evidenced by Alaska’s purchase of Virgin Airlines. With Hawaiian’s small size and niche focus, this makes it an attractive candidate to be bought out by a bigger airline.

I don’t normally focus on growth, but Hawaiian has been growing at an attractive clip for a few years now. Top line revenues have increased by 13% since 2013 and operating income has increased by 68% over the same period.

On an EV/EBIT basis, Hawaiian is one of the cheapest stocks in the entire market. Even if it isn’t bought out, the value proposition is compelling.

With a debt/equity ratio of 60%, Hawaiian also has little financial debt. This is true for many of the players in the airline industry, which is a welcome change from the history of the industry.

The competition against Southwest is a major concern, but Hawaiian never had a monopoly on flights to Hawaii from the United States. Competition isn’t anything new for the airline. At an enterprise multiple of 3.91, I also have an adequate margin of safety if competition does become brutal.

Like Alaska Airlines, this position also complements my international indexes that would benefit from higher oil prices. If oil were to decline, airlines should benefit.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.

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