Airlines 26 Jan 2007 04:50 am

AirTran Trying to Get Midwest for Cheap

by Sean Hackbarth

Midwest Airlines logo

As reported Midwest Airlines’ (MEH) board of directors told shareholders to not give into AirTran’s (AAI) latest offer of $13.25/share. With the recent fall in AirTran’s stock Robert W. Baird & Co. put the price of the deal at $12.95/share.

With earnings of $0.29/share for 2006 that gives Midwest a price/earnings (P/E) ratio of 43. That’s quite high for an airline, but not as high as AirTran’s P/E of 83. It’s not unreasonable to see Midwest garner a P/E of 15-20. In their conference call presentation Midwest predicted 2007 earnings per share would be $1.70/share, a 93% increase from 2006. Based on management’s expected 2007 earnings Midwest’s stock could get into the 20s-30s. Yet AirTran only wants to pay $13.25/share. Midwest CEO Timothy Hoeksema doesn’t blame AirTran for trying saying, “It’s no wonder AirTran thinks we’re a good company to try to buy. We think we’re a great company for our shareholders to own.”

The big “if” is Midwest meeting its lofty expectations. It depends on the price of oil and the airline increasing passengers by 15%. Robert W. Baird & Co. is skeptical. They want more details on how the company will increase earnings. Regional flights between Milwaukee and Duluth, MN won’t do the trick.

Suppose Midwest doesn’t earn $1.70/share in 2007 but only the $0.89/share analysts expect. That would put the stock’s value at $13-17 range still better than the offer from AirTran. If AirTran wants Midwest they’ll have to up the ante which will be difficult with a falling stock price.

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6 Responses to “AirTran Trying to Get Midwest for Cheap”

  1. on 26 Jan 2007 at 7:40 am 1.The American Mind / AirTran Will Need More for Midwest said …

    [...] “AirTran Trying to Get Midwest for Cheap” Share and Enjoy:These icons link to social bookmarking sites where readers can share and discover new web pages. [...]

  2. on 26 Jan 2007 at 8:26 am 2.steveegg said …

    Considering that there was no P/E this past quarter for AirTran, they’re trying to gobble up Midwest for REAL cheap.

  3. on 27 Jan 2007 at 2:05 am 3.Sean Hackbarth said …

    With AirTran’s latest numbers it seems the company’s plan is to grow its way to profits. If I were a Midwest shareholder I’d bet on the company actually making money.

  4. on 29 Jan 2007 at 9:46 am 4.The Carnival Of Investing #58, Monopoly Edition » Silicon Valley Blog About Money said …

    [...] TAM Money And Finance gives us AirTran Trying to Get Midwest for Cheap which is a tale of a possible acquisition and how the stock prices of the companies involved are playing a part in the speculation. [...]

  5. on 04 Feb 2007 at 11:18 pm 5.Ashish's Niti said …

    Festival of Stocks – February 5, 2007…

    Welcome to the February 5, 2007 edition of festival of stocks. Sean Hackbarth says AirTran is Trying to Get Midwest for Cheap. Paul Smith analyzes “the effect of Magazine tips when used in combination with Fundamental Analysis.” makingourway tackles …

  6. on 06 Feb 2007 at 6:32 pm 6.TAM Money and Finance » Best of the Festival of Stocks said …

    [...] TAM Money and Finance joined some great webloggers at Ashish’s Niti who hosted the Festival of Stocks. Here are some highlights: [...]

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