Virgin America Inc (NASDAQ:VA) — This low-cost airline made an impressive Nasdaq debut on Nov. 14, when it went public with 13.3 million shares priced at $23 apiece. VA stock closed that day at $30, up more than 30%.
The company began operations in 2007, but didn’t show profits until 2013. Shortly after the IPO, higher fares and an increase in passenger traffic resulted in favorable ratings from a number of analysts.
On Jan. 15, Bank of America Corp (NYSE:BAC) upgraded VA stock to a “buy” from “neutral, and on Tuesday, Raymond James Financial, Inc. (NYSE:RJF) upgraded it to “outperform” from “market perform” with a target of $43.
Raymond James’ opinion is based on EPS leverage due to lower fuel prices and the fact that Virgin operates primarily in the domestic/leisure market with limited exposure to currency risks associated with international carriers.
Its analysts project earnings will soar 73% to $4.30 per share in 2015 and increase another 7% to $4.60 in 2016. These estimates may be conservative since they are based on a Brent oil forecast of $70 in 2015 and $82.50 in 2016, which is well above the current price.
Even though VA stock has a limited trading history, some assumptions may be made with regard to its future value and pricing.
Shares ran to an all-time high at over $43 on Dec. 29. Since then, VA stock has retreated on profit-taking to the top of a support zone at $33 to $37.
Buy VA stock under $36 with a trading target of $43, which is just 10 times Raymond James’ 2015 EPS estimate, for a gain of nearly 20%. Investors may want to hold onto this well-run, small airline as a long-term investment with much greater appreciation potential.
