Mesa Air Group, Inc.

MESA Details

Mesa Air Group, Inc. (NASDAQ: MESA) is a holding company of Mesa Airlines, Inc., a regional airline based in Cincinnati/Northern Kentucky International Airport that serves 116 destinations in 36 states with cargo planes and scheduled flights. It operates all of its flights as American Eagle, United Express, or DHL Express flights via capacity purchase agreements. As of June 30, 2021, MESA used a fleet of 165 aircraft with around 470 daily departures.

Latest News:

• Expansion into Food Delivery Service: On October 21, 2021, MESA agreed to purchase four delivery drones from aerospace technology company Flirtey, with an option to buy up to 500 aircraft, thus becoming the first scheduled airline in the US to offer drone delivery. This move will enable MESA to diversify from airline to tap into the last-mile food delivery industry. Both MESA and Flirtey intend to extend drone delivery in the US and New Zealand.
• Appointment of CFO: On September 21, 2021, MESA announced the appointment of Torque Zubeck as its Chief Financial Officer (CFO). Mr Zubeck joined the company in February 2021 and served as the Vice President of Finance before this appointment.

9MFY21 Results:

• Decline in Topline: The company reported a YoY decrease of 14.70% in total operating revenues to USD 372.81 million in 9MFY21 (ended June 30, 2021) from USD 437.03 million in 9MFY20, attributable to lower flight operations, temporary reduction in rates, and flying fewer aircraft under the American Capacity Purchase Agreement (CPA).
• Expansion of Net Income: MESA reported an increase in net income to USD 24.08 million during 9MFY21 vs. USD 16.09 million during 9MFY20.
• Cash and Debt Position: As of June 30, 2021, the company's cash balance stood at USD 180.40 million, with total debt (including finance leases) of USD 693.49 million.

Risks:

• Customer Concentration Risk: MESA generated 46% and 52% of total revenue during 9MFY21, from American Airlines and United Airlines, respectively, through capacity purchase agreements. As a result, the loss of any of these key customers could harm its financial performance.
• Solvency Risk: MESA's aviation fleet carries a significant amount of debt and extensive long-term lease obligations, which could limit its ability to obtain more financing on favorable terms, if at all.

Outlook:

Forward Guidance (Source: Q3FY21 Earnings Release, August 09, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM 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 fell 30.55% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 3.11 to USD 17.40. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 53.61. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 9.70.

Considering the correction in the stock price, strategic growth initiatives, current trading levels, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 7.90, up 0.16% as of October 25, 2021, 2:21 PM 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.