Virgin America (NASDAQ: VA) is attracting attention as a low-cost airline that strives for high quality as it flies coast to coast in America and Mexico. The airline went public in November of this year for an initial public offering price of $23, raising more than $305 million. Virgin America shares most recently closed at $35.81 on December 24.
Virgin America markets itself as a hip airline. Its colorful website is easy to navigate and boasts “mood-lit cabins,” WiFi, and “a host of fun” on flights. Virgin America is notably smaller than its competitors with a $1.76 billion market cap, compared to Delta at $40.07 billion and American Airlines at $36.89 billion.
On December 24, analyst David Fintzen of Barclays initiated coverage on Virgin America with an Overweight rating and a $42 price target. Fintzen commented, "VA is built for the premium and business travel segment, much like Ultra Low-Cost Carriers (ULCCs) are now built from the ground up for leisure. VA is focused on a business customer base while maintaining a low-cost operation.” The analyst continued, “The Virgin America model has proven successful in generating premium revenue in its most developed markets, from transcontinental markets (LA/San Francisco to NYC) to shorthaul California.” Virgin Atlantic “employs a young and fuel-efficient fleet, focusing on a single aircraft type with high utilization in predominantly point-to-point markets. As a result, its cost structure is not far off best-in-class.” Looking forward, Fintzen estimates, “17 percent upside potential in VA, 82 percent if fuel stays low and has limited revenue implications.”
David Fintzen has an 80% overall success rate recommending stocks with a +31.6% average return per recommendation.
Separately on December 24, analyst Michael Linenberg of Deutsche Bank (DB, Financial) initiated a Buy rating with a $44 price target. Linenberg noted Virgin America’s cost structure, which allows it to “offer a lower price for its three-class product than its primary competitors.” Virgin America is able to keep costs down by “flying a single aircraft type, high asset utilization, and outsourcing all functions that are non-passenger facing.” The analyst is attracted by VA’s unique strategy, which includes “targeting price-sensitive business travelers and high-end leisure customers who ascribe value to a hip, high-tech, high-touch travel experience.”
Michael Linenberg has a 67% overall success rate recommending stocks with an average return of +28.5% per recommendation.
Last, analyst Bob McAdoo of Imperial Capital initiated coverage on Virgin America with an Outperform rating and a $52 price target. McAdoo noted that the airline has the potential to expand, “Given the airline’s head-to-head successes against legacy and traditional low-cost airlines.” McAdoo noted that VA “has consistently generated higher average fares and higher revenue per mile… on transcontinental routes” than competitors. Although Virgin America experienced several unprofitable years, it has “produced net profits” in “five of the past six quarters.” McAdoo expects profitability to continue “given management’s current focus and with recent significantly lower jet fuel prices.”
Bob McAdoo has an 88% overall success rating recommending stocks with a +36.7% average return per recommendation.
On average, the top analyst consensus for VA on TipRanks is Strong Buy.
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Sarah Roden writes about stock market news. She can be reached at [email protected]
