Christmas has brought good tidings for low-cost airline Virgin America Inc. (VA). Shares of the company climbed 14.49% to close the trading session on Dec 24 at $41.00. The surge followed initiation of coverage on the stock by several research firms and the accompanying bullish comments and favorable ratings assigned by the concerned analysts.
We note that this marks the highest jump in the share price of the carrier ever since it went public last month (read more: Virgin America IPO: Stock Surges 30.4% After Trading Debut ). While analysts of firms like Deutsche Bank, Bank of America, Imperial Capital, Barclays and Cowen & Company initiated coverage on the low-cost carrier with Buy or equivalent ratings, research firm Raymond James assigned an initial rating of Market Perform.
Deutsche Bank is of the view that Virgin America is “a unique low cost carrier focusing on price-sensitive business travelers and high-end leisure customers who value a hip, high-tech, high-touch travel experience”. The firm further believes that the disciplined cost structure at Virgin America allows it to offer a lower price for its three-class product compared to its peers. The firm is impressed by the carrier’s practice of flying a single aircraft type (Airbus A320 family), high asset utilization and outsourcing of activities like baggage delivery, heavy maintenance and reservations. The firm believes that there lies ample scope for growth at Virgin America.
Barclays, also impressed with Virgin America’s mode of operation, holds that Virgin America represents significant scope for upside, which should increase further in the event of fuel costs remaining low. Bank of America opines that the low-cost carrier boasts one of the youngest fleet coupled with a dynamic and productive workforce. Imperial Capital believes that the Virgin America has successfully generated higher average ticket prices and higher revenue per mile compared to other carriers like Delta Air Lines (DAL), and United Continental Holdings (UAL), particularly on key transcontinental routes. We expect investors to remain glued to the performance of Virgin America in 2015 to ascertain whether the company can actually live up to the bullish views provided by the analysts.
Raymond James is of the opinion that Virgin America is facing yield pressure due to price cuts implemented by Southwest Airlines (LUV) in Dallas and JetBlue Airways (JBLU) in New York.
While Delta and Southwest Airlines sport a Zacks Rank #1 (Strong Buy), JetBlue and United Continental carry a Zacks Rank #2 (Buy).
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