Why Mesa Air Group Stock Is Taking Off Today

What happened

Shares of Mesa Air Group (NASDAQ:MESA) climbed 15% on Wednesday morning following the company’s quarterly earnings report. Results far exceeded estimates, and that has Wall Street’s attention.

So what

After markets closed Tuesday, Mesa reported fiscal first-quarter earnings of $0.39 per share on revenue of $150.37 million, easily topping analyst expectations for $0.03 per share in earnings on $130 million in sales.

Airline stocks have been hit hard by the pandemic, which has caused travel demand to evaporate. But Mesa isn’t a typical airline. The company primarily operates small planes under contracts with larger partners. It has a fleet of 159 aircraft providing flights to 116 cities under deals with American Airlines Group, United Airlines Holdings, and Deutsche Post DHL.

Image source: Getty Images.

The quarterly results got a boost from the DHL cargo business, which for now operates two planes out of Cincinnati but which Mesa said it is looking to grow.

“While 2020 has been a challenging year for the industry, we were pleased to remain profitable and cash flow positive throughout the pandemic,” CEO Jonathan Ornstein said in a statement. “In addition, we implemented a number of important strategic initiatives with our partners at American, United, and DHL.”

Mesa is also likely benefiting from United’s investment in electric plane start-up Archer. As part of the investment, United hopes to eventually buy up to 300 of these planes, and operate them in partnership with Mesa.

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Now what

Mesa’s growth prospects heading into 2021 look solid. During the last quarter, it reworked its agreement with American to increase the number of planes flying in its network, and is also looking for opportunities to expand cargo.

Post-earnings, Deutsche Bank analyst Michael Linenberg upgraded Mesa shares to a buy from a hold, with a $10 price target, and Cowen analyst Helane Becker raised her price target to $8.50. The optimistic talk is providing lift for the shares today, in anticipation that the last quarter was a sign of good things to come from Mesa.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


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