Short interest soars in Delta Air, Southwest

Domestic airlines in general saw the largest upswings, as the summer travel season draws to a close.

By Benzinga Sep 27, 2013 4:50PM
parked airplane © Sava Alexandru, Vetta, Getty ImagesBy Nelson Hem

For U.S.-based airlines, the largest upswings in short interest in early September, as the summer travel season came to a close, happened to Delta Air Lines (DAL) and Southwest Airlines (LUV).

The number of shares sold short in Allegiant Travel (ALGT) and SkyWest (SKYW) grew more modestly between the Aug. 30 and Sept. 13 settlement dates.

Alaska Air Group (ALK), JetBlue Airways (JBLU) and Republic Airways (RJET) saw little change in their short interest in the period.

However, United Continental (UAL) and U.S. Airways (LCC) each saw a sizable drop in the number of its shares sold short. Short sellers also shied away from and Spirit Airlines (SAVE) during the period.

Note that American Airlines remains in bankruptcy, its pending merger with U.S. Airways in question.

In addition, short interest in manufacturer Boeing (BA) grew more than 30% in the first weeks of September, while that in Lockheed Martin (LMT) declined somewhat.

Below is a quick look at how Delta Air Lines, Southwest Airlines and United Continental have fared -- and what analysts expect from them.

Delta Air Lines

This Atlanta-based company saw short interest more than double from about 18.61 million shares in the previous period to more than 43.74 million by mid-month. That was about five percent of the float, and by far the greatest number of shares sold short in the past year.

During the period, Delta was reinstated in the S&P 500. Its market capitalization is more than $19 billion, and the dividend yield is about 1.1%. The long-term earnings per share (EPS) growth forecast is more than 27%, and the operating margin is better than the industry average.

All but one of the 14 analysts surveyed by Thomson/First Call recommend buying shares of Delta, with five of them rating the stock at Strong Buy. Their mean price target, or where the analysts expect the share price to go, is more than 10% higher than the current share price.

The share price is more than 25% higher than a month ago and up more than 96% since the beginning of the year. The stock has not only outperformed competitors United Continental and U.S. Airways over the past six months, but the Dow Jones Industrial Average, as well.

Southwest Airlines

After three consecutive periods of decline, the number of shares sold short in this Dallas-based passenger airline operator surged about 94% to around 24.11 million. That represents more than three percent of the company's float. Days to cover rose to more than four for the first time since May.

This carrier serves 97 destinations in 41 states and six destinations in the Caribbean and Central America. It has a market cap of more than $10 billion and a dividend yield of about 1.1%. Southwest also has a long-term EPS growth forecast is more than 33%.

The polled analysts on average recommend holding Southwest shares. They believe the shares have a little headroom, as their mean price target represents more than five percent potential upside, relative to the current share price. That consensus target would 

be a new multi-year high.

The share price is up almost 14% in the past month, as well as more than 40% higher than at the beginning of the year. Shares hit a new 52-week high earlier this week. Over the past six months, the stock has outperformed competitor JetBlue, as well as the broader markets.

United Continental

Short interest in the operator of United Airlines shrank about 24% to more than 14.46 million shares, ending a three-period streak of rising short interest. About four percent of United Continental's shares were sold short. The days to cover dropped to less than three.

United Continental accidentally sold tickets for $5 on its website in September. Its market cap is more than $11 billion, but it does not offer a dividend. The long-term EPS growth forecast is more than 45%, though the operating margin is less than those of the peers mentioned below.

Half of the 14 analysts surveyed recommend buying shares, with only one analyst rating the stock at Underperform. Their mean price target is almost 11% higher than the current share price. However, that target is less than the 52-week high reached back in July.

The share price increased about 23% in the past month, regaining much of the steep drop off in August. It is up more than 40% year-to-date. Over the past six months, the stock has underperformed rivals Delta and U.S. Airways, as well as the S&P 500.

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