ACAI--Merrill Lynch says "overreaction." Looking for a Monday bounce.
Atlantic Coast Shares Decline on Profit Concern (Update2) (Closes shares.)
Dulles, Virginia, May 21 (Bloomberg) -- Atlantic Coast Airlines Holdings Inc. shares fell 31 percent on concern that the carrier's average air fares have weakened due to less revenue from business travelers and more competition.
Atlantic Coast shares sank 7 1/8 to 15 7/8 after analysts lowered their earnings estimates for the carrier, which operates as United Express out Washington's Dulles airport. The stock earlier touched 15 3/4.
A company warning to analysts about the earnings came as competition in Atlantic Coast's home market on the East Coast is heating up mainly because of expansion by partner UAL Corp.'s United Airlines and US Airways Group Inc. ''The lower yields reflect the fact there are a lot of seats being added into the Washington-Dulles market,'' said Merrill Lynch & Co. analyst Michael Linenberg, who lowered his earnings estimates for Atlantic Coast.
As competition among the carriers rises, fares tend to fall. A drop in profit from corporate customers, who generally buy the most expensive, last-minute fares, has pushed down Atlantic Coast's average fare too, analysts said.
Business customers have a larger effect on regional airlines, such as Atlantic Coast, because they ferry corporate customers to smaller and mid-sized towns. Dulles, Virginia-based Atlantic Coast flies in the Eastern and Midwestern U.S. as a commuter carrier for United.
The carrier's difficulty in switching to a new computerized system that helps set fares also contributed to BT Alex. Brown Inc. analyst Susan Donofrio's downgrading of the airline to a ''buy'' rating from a ''strong buy,'' she said in a report.
While Donofrio said the carrier's outlook remains ''very much intact'' because of its growing use of small jets and increased service at Washington's Dulles airport, she reduced Atlantic Coast's earnings estimates.
She estimates that Atlantic Coast will have per-share earnings of 51 cents in the second quarter, down from a previous forecast of 65 cents, and $1.70 for the year instead of $1.98, according to Donofrio's report.
While Merrill's Linenberg lowered his per-share estimates to 51 cents from 60 cents for the second quarter and to $1.65 from $1.75 for the year, he said the stock decline was an overreaction by investors.
Atlantic Coast had profit of $10.5 million, or 49 cents a share, in the second quarter last year and $31.8 million, or $1.49, for the year. |
