Mesa Air Group, Inc.

MESA Details

Mesa Air Group, Inc. (NASDAQ: MESA) is the holding company of Mesa Airlines, Inc., a regional airline based in Northern Kentucky that flies to 120 cities in 42 states, the District of Columbia, the Bahamas, and Mexico. According to the terms of capacity purchase agreements (CPAs) with its significant partners American Airlines, Inc. and United Airlines, Inc., as well as a Flight Services Agreement (FSA) with DHL Network Operations (USA), Inc., all of its flights are operated as American Eagle, United Express, or DHL Express flights.

Latest News:

• New Appointments: MESA selected Christian Daoud as its new Vice President of Maintenance and Technical Operations on March 01, 2022. Daoud joined Mesa in 2006 as a Lead Aircraft Mechanic and is currently the Senior Director of Technical Operations. He will succeed Chris Toro and report directly to Executive Vice President and COO Brad Rich.

Q1FY22 Results:

• Flat Operating Topline: Total operational revenues fell 1.74% YoY to USD 147.76 million in Q1FY22 (ended December 31, 2021) from USD 150.37 million in Q1FY21, owing to a fall in pass-through maintenance revenue associated with the company's E-175 fleet.
• Expansion in Block Hours: MESA saw a 24.31% increase in block hour (the number of hours an aircraft is in revenue operation) from 69,247 in Q1FY21 to 86,079 in Q1FY22.
• Improvement in Passengers: The company observed an increase in the number of passengers to 2.69 million in Q1FY22 from 1.83 million in Q1FY21.
• Growth in RPMs: MESA reported a 50.60% increase in revenue passenger miles (RPMs) to 1.76 billion RPMs in Q1FY22 vs. 1.17 billion RPMs in Q1FY21. RPM shows the number of miles traveled by paying passengers.

Key Risks:

• Customer Concentration Risk: In FY21 and FY20, American CPAs accounted for around 45% and 52% of the company's total sales, respectively. In FY21 and FY20, United accounted for about 52% and 48% of the company's total sales, respectively. The company's financial and business prospects may be harmed if the American or United CPAs are terminated.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

The company leased a third 737-400F aircraft, with delivery scheduled for February 2022. It anticipates that cargo will become an increasingly important element of its company in the future. MESA's stock price has fallen 56.63% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 4.12 to USD 17.40. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 5.21. The company offers an enticing risk-reward at current prices.

Considering the significant correction in the stock price, fostering outlook, improvement in airline metrics, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 4.19, down 2.56% as of March 03, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Three-Year Technical Price Chart (as of March 03, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.