Republic Airlines Massive Short Cover

Steve Kanaval  |

On Monday I wrote about the collapse of Republic Air (RJET) as the carrier fell 55%, in an article titled Regional Carrier Takes a Hit as Pilot Strike Looms, and talked about the volatile nature of trading this group. Yesterday, they bounced right back, with zero news – but the market is telling you there must be a solution somewhere in the air, as shares have rallied back 50% to above $5.10 in morning trading. 

Last week, shares were at $8, on Monday they fell to $3, and on Wednesday they were testing $6 per share. If you own a big position in this company, your P&L is your enemy - this stock has similar P&L ramifications to China - although they’re not remotely correlated.

The recent move is all short covering. At 21 million shares traded so far today, the buyers are made up of portfolio managers who have active shorts on the books for 2015. Presumably, the buyers consist of anyone who was short in the teens ($15 -$13) but failed to pull the trigger and cover short positions when they had the chance at $3 - $4 per share when the volume was heavy.

Republic Should be Flying High for a While

This is the boss coming in and saying "get out now, let’s move on to the next trade - and book the money.” The odd thing to me is that no one at the company, or anyone who covers the stock is saying anything, which leaves room for speculation that someone bid for the company - which would make perfect sense.

Once the union/labor issues are solved, the company has a reliable run rate and is a big contributor to keeping passengers in the air. It’s worth much more than the $200 million valuation the lower pricing attaches to them. Strikes happen, but this is a $6 stock, and a $500 million dollar company no matter how you cut it – labor contract or no labor contract.

As I mentioned before, this is one to watch, because it becomes an indicator for all airlines, just like a pawn on the chessboard, moved from front to back row – just don't forget the volatile queen is lurking. I will be doing a piece on regional airlines on the back of my upcoming beverage sector “freemium” product so stay tuned for upcoming information for our Small Cap Showdown newsletter series. It is all about the global consumer in 2015, so don't miss out on a unique perspective. 

 

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Companies

Symbol Name Price Change % Volume
RJET Republic Airways Holdings Inc. n/a n/a n/a 0

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