Mesa Air Group, Inc.

MESA Details

Mesa Air Group, Inc. (NASDAQ: MESA) is the holding company for Mesa Airlines, Inc., a regional airline based in Northern Kentucky that serves 129 cities in 39 states, the District of Columbia, the Bahamas, and Mexico. All of its flights are operated as American Eagle, United Express, or DHL Express flights, 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.

Latest News:

• December '21 Operating Performance: MESA reported a 3.8% rise in block hours in December 2021 compared to December 2020. MESA's controllable completion factor of 93.05% and 97.89% for its American and United operations, respectively, was primarily due to Covid-19 and its impact on staff attendance.

FY21 Results:

• Flat Operating Topline: The company reported a YoY decline of 7.61% in total operating revenues to USD 503.59 million in FY21 (ended September 30, 2021) compared to USD 545.07 million in FY20, attributable to temporary reductions in rates and flying fewer covered aircraft under the American CPA.
• Fall in Bottomline: MESA reported a decline in net income to USD 16.59 million during FY21 vs. USD 27.46 million during FY20.
• Growth in Block Hours: MESA witnessed a YoY 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.
• Improvement 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.

Risks:

• Customer Concentration Risk: American CPA accounted for roughly 45% and 52% of the company's total sales in FY21 and FY20, respectively. United accounted for around 52% and 48% of the company's total sales in FY21 and FY20, respectively. Terminating the American or United CPAs could adversely impact the company's financial and business prospects.

Outlook:

Forward Guidance (Source: Q4 and FY21 Earnings Release, December 09, 2021)

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:

MESA's stock price has fallen 54.37% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 4.45 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 6.24.

Considering the significant 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 5.0462, up 0.92% as of February 01, 2022, 02:56 PM ET.

Three-Year Technical Price Chart (as on February 01, 2022, at 02:56 PM ET). 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.