Mesa Air Group, Inc.

MESA Details

Mesa Air Group, Inc. (NASDAQ: MESA) is the holding company for Mesa Airlines, Inc., a regional airline that operates out of Northern Kentucky International Airport and serves 129 cities in 39 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., and 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:

• November '21 Operating performance: MESA reported a 23% rise in block hours in November 2021 compared to November 2020 due to ongoing increased flying due to the lifting of certain COVID travel restrictions on December 20, 2021. Its American and United divisions claimed a controllable completion factor of 98.58% and 98.48%, respectively.

FY21 Results:

• Flat Operating Topline: The company reported a slight decline of 7.61% in total operating revenues to USD 503.59 million during FY21 (ended September 30, 2021) from USD 545.07 million during FY20, due to temporary reductions in rates and flying fewer covered aircraft under the American CPA.
• Fall in Bottomline: MESA reported a decrease in net income to USD 16.59 million during FY21 vs. USD 27.46 million during FY20.
• Improvement in Block Hours: MESA reported a 3.22% rise in block hour (number of hours during which the aircraft is in revenue service) to 323,219 during FY21, compared to 313,110 during FY20.
• Progress in RPMs: It further reported an increase in Revenue Passenger Miles (RPM) to USD 5.89 billion during FY21 vs. USD 5.13 billion during FY20.

Key Risks:

• Customer Concentration Risk: For FY21, FY20, and FY19, American accounted for around 45%, 52%, and 53% of the company's total sales, respectively. For FY21, FY20, and FY19, United accounted for roughly 52%, 48%, and 47% of the company's total sales, respectively. Terminating the American or United CPAs would significantly negatively impact the company's business prospects and financial flows.

Outlook:

• FY22 Estimates: As of December 09, 2021, MESA expects the Q2FY22 fleet size to be around 168. It expects block hours in Q1FY22 to be approximately 87,000. It also forecasts to spend roughly USD 10.0 million on pass-through maintenance in Q1FY22 and around USD 13 million on non-pass-through engines and C-check.

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.

MESA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

MESA's stock price has fallen 56.18% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 5.16 to USD 17.40. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 40.20. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 7.21.

Considering the correction in the stock price, encouraging outlook, improvement in growth metrics, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 5.74, down 1.88% as of January 06, 2022, 10:17 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.