Analysts Cowen reiterated its outperform rating on the shares of US carrier Atlas Air Worldwide and the firms has increased its price target for the firm’s share to $40 from $37.
According to Cowen, Atlas should see benefits from belly capacity reduction in China due to capacity reallocation by the passenger airlines. It said that Atlas is also taking a deeper look into the business to improve results in the current air freight environment with a focus on their growth clients and continued cost reduction efforts.
Cowen said that Atlas was continuing to review its competitive positioning and is actively adjusting operations to focus on growth customers and maximize cost savings. The analysts said $616 MM impairment charge taken this past quarter on the 747-400 freighter fleet, where management opted to park lower yielding, less efficient aircraft, was evidence of this approach.
“This fleet change should lead to lower rent and depreciation expense in 2020 and beyond. Atlas remains mindful of cost production from employee head count and non-essential travel, seeing these areas as potential future cost savings,” said Cowen.
Cowen said that Atlas is positioned to benefit significantly from the reduction of capacity to China as a result of the coronavirus because even though Chinese factories are producing at lower levels than previously due to the outbreak, freight capacity had dropped further offering the potential for higher yields.
In fact, Cowen has a more positive view of the potential for the firm’s China cargo business than Atlas’s management itself.
“Atlas is having conversations with customers about securing air lift when the factories are back at full strength. Management attempted to downplay the positive impact as it is still unclear when manufacturing will fully recover.
We believe the outlook is conservative in that sense but, we won’t know until factories begin producing at a high level. Regardless, Atlas is positioned to see incremental upside given the reduction in belly capacity to China,” said Cowen.
