Mesa Air Group, Inc.

MESA Details

Mesa Air Group, Inc. (NASDAQ: MESA) is a holding company of Mesa Airlines, Inc. and Mesa Air Group-Airline Inventory Management, LLC. The former is the group's principal subsidiary, which operates as a regional air carrier providing scheduled flight service and air freight services to 116 cities in 36 states. As of June 30, 2021, MESA operated a fleet of 167 aircraft with ~470 departures operating from Cincinnati/Northern Kentucky International Airport. Its revenues are categorized into 1) Contract Revenue, which refers to fixed monthly charges per aircraft subject to its capacity purchase and flight services agreement, and 2) Pass-Through & Other Revenue, which includes revenue earned through insurance, aircraft property taxes, and other direct and maintenance costs. As of August 10, 2021, the company's market capitalization stood at USD 318.09 million.

Flight Towards Sustainability:  On July 13, 2021, MESA announced its investment in electric aircraft company Heart Aerospace, which along with Breakthrough Energy Ventures and United Airlines Ventures, plans to produce the world's first nineteen-seat ES-19 aircraft. MESA also targets to add 100 ES-19 aircraft to its regional fleet in its attempt to decarbonize air travel by using electric aircraft.

Q3FY21 Results: The company reported an uptick of 71.22% in total revenue to USD 125.16 million in Q3FY21 (ended June 30, 2021) compared to USD 73.10 million in Q3FY20, primarily due to an increase in block hours driven by a recovery in the industry from COVID-19. Net income for Q3FY21 grew 25.07% YoY and stood at USD 4.28 million compared to USD 3.42 million in Q3FY20. As of June 30, 2021, the company's cash balance stood at USD 180.40 million, with a total debt of USD 693.49 million.

Key Risks: American Airlines and United Airlines were the two largest customers in Q3FY21, accounting for roughly 45% and 51% of the total revenue, respectively. Hence, the loss of any of these key customers could hurt its financials. In addition, MESA has assumed a significant amount of leverage and long-term lease obligations, which may limit or restrict its ability to raise additional financing on acceptable terms.

Outlook:

Forward Guidance (Source: Q3FY21 Earnings Release, August 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 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 decreased 22.64% in the past three months and is currently leaning towards the lower band of the 52-week range of USD 2.80 to USD 17.40. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.17. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 10.06. Considering the correction in the stock price, strategic growth initiatives, and current valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 8.03, down 9.88% as of August 10, 2021.

* 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.

 Waitr Holdings Inc.

WTRH Details

Waitr Holdings Inc. (NASDAQ: WTRH) is an online ordering technology platform in the US that provides delivery, carryout, and dine-in options. Along with its subsidiaries Bite Squad and Delivery Dudes, the company connects local restaurants and grocery stores to diners in underserved US markets. On June 30, 2021, WTRH had over 25,000 restaurants from 900 cities listed on its platforms.

Expanding Beyond Third-Party Food Delivery: WTRH recently signed definitive agreements to purchase three payment processing companies ProMerchant LLC, Cape Cod Merchant Services LLC, and Flow Payments LLC. These acquisitions will diversify WTRH's existing operations and mark its entry into the merchant processing solutions space.

Enhancing the Scope of Restaurant Selection: On July 28, 2021, WTRH announced a partnership with KBP Foods, a franchisee of KFC operating nearly 800 YUM! Brands restaurants across 28 states in the US. WTRH will commence its delivery operations straightaway from more than 140 KBP locations throughout the US. This partnership will augment the WTRH portfolio of delivery-only restaurants on its platform and enhance its market presence in the on-demand delivery sector.

Q2FY21 Results: The company reported a YoY decline of 18.74% in net revenue to USD 49.17 million in Q2FY21 (ended June 30, 2021) compared to USD 60.51 million in Q2FY20, attributable to a reduction in order volumes driven by adverse weather conditions and government curbs in response to COVID-19 pandemic. WTRH reported a net loss of USD 5.64 million in Q2FY21 compared to a net income of USD 10.65 million in Q2FY20. As of June 30, 2021, the company had a cash balance of USD 60.55 million and total debt of USD 86.68 million.

Key Risks: Incentive payments by the US federal government in Q1FY21 to mitigate the impact of economic challenges posed by the pandemic had led to a decline in the availability of drivers. As a result, WTRH will need to spend more to attract qualified drivers, adversely impacting its profitability. In addition, the Biden government revoked the implementation of a favorable, company-friendly labor regulation initiated during the tenure of the Trump administration by the Department of Labor (DOL). Moreover, the DOL could enforce a more worker-friendly regulation, along with stricter enforcement against misclassification claims by the companies. The issuance of such stricter regulations or an increase in SEC enforcement activity could adversely affect the operations and profitability of the company.

Outlook: WTRH has undertaken a strategic rebranding initiative to revamp its name and visual identity. This initiative will augment WTRH's long-term vision of innovation, expansion into new verticals, and developing a technology-forward platform.

Valuation Methodology: Price/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.

WTRH Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: WTRH's stock fell 32.30% and 67.17% in the past 3 and 6 months, respectively, and has currently breached its 52-week range of USD 1.41 to USD 5.25. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 28.98. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 1.80. Considering the significant correction in the stock price, strategic growth endeavors, significant leverage, and other associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 1.30 as of August 10, 2021, 12:24 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.