Hawaiian Holdings, Inc. (HA)


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.


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.

Alaska Airlines (ALK)


Alaska Airlines (ALK)

 Key Statistics

Enterprise Value = $9.566 billion

Operating Income = $1.508 billion

EV/Operating Income = 6.34x

Earnings Yield = 9%

Price/Revenue = 1.16x

Debt/Equity = 77%

Debt/EBITDA = 1.79x

The Company

 Alaksa Airlines is a holding company that owns a portfolio of Airlines: Alaska, Virgin America (purchased in December 2016) and Horizon Air. They are the 5th largest airline in the United States. They fly to 118 destinations and are the industry leader for on-time performance. Their focus is on low fares and timely service. A bulk of their business (34%) supports West Coast travelers.


Year to date the stock is down 21%. In general, airlines are considered to be a terrible business. The business is brutally competitive. Most airline passengers look primarily at the bottom line and view the product as a commodity. There is very little commitment to one brand over another. Airlines are also sensitive to swings in oil prices, which can be severe. For Alaska in particular, this year they ran into trouble with their Horizon Air unit. A number of pilots quit (likely for pay increases at competing airlines) and this resulted in the cancellation of flights and a dip in revenue. The recent merger with Virgin has also consumed much of the airline’s attention. Crude oil prices also appear to be on the upswing, which could pose trouble for the company.

My take

Airlines are historically a brutal business, but this appears to be changing. Warren Buffett famously hated the airline industry, but recently he has changed his tune and Berkshire bought a basket of airlines. Berkshire did this after Ted Wechsler researched the business after seeing a presentation from American Airlines. Doug Parker, the CEO of American, argued that increased consolidation is ending the brutal price competition that used to plague airlines. In other words: the airline business is turning into an oligopoly. This is bad news for airline passengers, but good news for shareholders in airlines.

In the past, airlines historically took on dangerously high levels of leverage. That is changing and the debt profile of the airline industry is not risky. There are many airlines today sporting low debt/equity and low debt/EBITDA ratios and Alaska Airlines is one of them.

As a business, airlines grow with the economy. Total air revenue passenger miles recently hit an all-time high in July 2017. For Alaska Airlines, in particular, growth has been robust. Revenues grew from $5.1 billion in 2013 to $5.931 billion in 2016. They also boast an impressive return on invested capital at 21%.

Oil is a problem, but due to the positions that I haven in international indexes that will benefit from rising oil prices, I think the two positions complement each other nicely.

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.


The rebalance has begun! I sold the below positions this morning.

I’ll start deploying the cash next week.

My goal is to be fully invested by the start of 2018 in a new portfolio of undervalued securities. I will likely sell most of my positions. I plan on keeping GME, FL, CTB, PCO and possibly KELYA.

NHTC – Sold 103 shares @ $17.27

SCS – Sold 144 shares @ $14.50

IESC – Sold 129 shares @ $18.80 (I was lucky with one, it started sliding after I got out)

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.

Pendrell Corp (PCO)

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Key Statistics

Market Capitalization = $170.34 million

Cash & Equivalents = $187.22 million

Current Assets = $208.63 million

Total Liabilities = $8.5 million

Net Current Asset Value = $200.13 million

Z-Score = 2.19


Pendrell owns a portfolio of patents. They acquired most of their patents through acquisitions. In 2013, they purchased a number of patents (mostly dealing with memory storage) from Nokia. They have another group of patents purchased from ContentGuard, which prevent electronic content from being pirated. They also own patents related to digital cinema and wireless technology.

Pendrell makes most of their money through licensing the patents that they own, selling their portfolio of patents and through litigation to combat patent violations.

This is a business model which leads to wildly divergent operating results. In 2015, for instance, the company posted an operating loss of $121 million, while in 2016 the company had an operating income of $15.22 million.


I would classify sentiment against Pendrell as extreme hatred. Since 2006, the stock has lost 89% of its value. The current market capitalization is not only below net current asset value, it is below net cash value. If Pendrell simply took its cash on hand and paid all of its debts, it would pay for the company’s market capitalization. The market thinks that Pendrell is worth more dead than alive.

My Take

I placed 2% of my portfolio in Pendrell yesterday. Pendrell is a classic Ben Graham net-net or what Buffett would call a “cigar butt”. The nice thing about Pendrell is that nearly all of the net current asset value (NCAV) is pure cash, meaning that in a liquidation very little of the net current asset value would be lost. In contrast, many NCAV situations have most of the value tied up in inventory, which usually can only be liquidated at fire-sale prices. The true value of Pendrell’s stock is likely much higher, as the net current asset value assigns very little value to Pendrell’s portfolio of patents.

Obviously, bargains like this don’t come along without a reason. The reason for Pendrell’s undervaluation is its history of operational losses. Over the last 4 years, the company lost $3.32 per share.

I bought the stock purely for the balance sheet value. That’s why my “key statistics” section is different from those of companies I purchase for revenues & earnings. Pendrell could be liquidated, its portfolio of patents could be sold, and this could result in a positive outcome for shareholders. If the company isn’t liquidated, the slightest glimmer of hope could send the stock soaring. A major patent sale or a favorable outcome to ongoing litigation are possible events that could turn the stock around. Meanwhile, the NCAV value provides a floor for losses.

The main challenge with a net-net is simple: determining if the company will stay alive and not squander its net current asset value. I see little evidence of cash burn with Pendrell, as its cash on hand has remained consistent in the range of $138-$174 million over the last few years. Cash & equivalents are actually higher than they were a year ago: $187 million today vs. $176.31 million a year ago. The net current asset value should remain intact. Additionally, Pendrell has an Altman Z Score of 2.19, placing it outside of the zone of financial distress which would indicate that a bankruptcy is imminent.

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.