Why BofA Sees Tailwinds For Mesa Air Group

Mesa Air Group Inc MESA shares traded up 11% Wednesday after BofA Securities upgraded its rating from Underperform to Buy and increased its price target from $2 to $15.

BofA analyst Andrew Didora upgraded Mesa Air after the company fixed its balance sheet with government grants and a loan and expanded its contracts with American Airlines Group Inc AAL and United Airlines Holdings Inc UAL.

The Mesa Air Thesis: While Mesa Air is already up over 480% since its April lows, Didora sees tailwinds for the company when the economy reopens and its partners, United Air and American Airlines, are able to capitalize on customers returning to travel.

Didora added that this, along with a $140 million government grant funds and a $195 million government loan, have helped Mesa Air to rectify some of the $900 million in debt the company posted pre-COVID-19 pandemic.

Didora noted Mesa Air has been able to reduce the risk of operational disruptions by extending its contract with American Airlines for an additional five years. He also sees a future benefit with Mesa Air's partnership with United Airlines for the $1 billion order of Archer Aviation’s all-electric, vertical take-off and landing aircraft (eVTOL).

While Didora viewed Mesa Air’s investment of $5 million into Atlas Crest Investing Corp ACIC, the SPAC that acquired Archer, as small, he noted it gives Mesa Air exposure into a high growth sector.

On Feb. 9, Mesa Air released its earnings report for the first quarter of 2021, reporting an adjusted EPS of 36 cents, beating the Street estimate of 3 cents. The company reported $150.4 million in revenue, which was down 18.29% year-over-year, but beat the Street estimate of $130.4 million.

MESA Price Action: Mesa Air stock closed up 11.32% at $11.80.

(Photo: Mesa Air via Twitter)