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Non-Tech : NORTHWEST AIRLINES TREND IS GOING TO CHANGE
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To: Skipperr who wrote (6)9/9/1998 8:42:00 PM
From: Golden Bear  Read Replies (1) of 10
 
Stock Price discussion anyone? Analysts are finally releasing estimates of the strike's effect on 1998 earnings. CS First Boston estimates $300 million of losses through last Sunday Sept. 6th. Donaldson, Lufkin & Jenrette lowered full-year estimates from $5.35 to $2.00 earnings per share. I have been waiting to buy NWAC for the rebound when the strike is settled, but the stock is holding fast. Using the revised earnings estimate of 2.00 per share, the stock is trading at a lofty 13.50 X earnings. Putting this in perspective, let's look at United who is benefiting enormously from the strike: United is trading at 6 X earnings (wow!).
Let's compare book value: United is worth $51.00 per share, whereas Northwest (before the strike) was worth negative 80 cents per share. Northwest claims 3 billion of cash and credit lines to weather the strike, but exercising these lines may further weaken a company with no substantial assets: Just my opinion, but bankruptcy is not out of the question depending on length of strike.

Bottom line: it is hard to imagine NWAC trading at a higher PE than United in the short run. Even a 5 P.E. is worth only $10 per share. But before I choose my target re-entry price, I would want more information on how quickly the airline can operate in the black upon resumption of operations. Plus, are lenders willing to work with Northwest i.e. how severe are the repayment terms of the recently issued debt (some 2 billion plus). Any input from the thread would be appreciated.
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