Republic Airways Holdings Inc. (RJET) Is Stuck in a Holding Pattern

Core is still intact
Since Republic is likely to separate from Frontier by the end of the year one way or another (either through a sale or a spinoff), investors should really focus on the health of the core regional airline business. While the regional airline industry has undergone significant turmoil in recent years, Republic is favorably positioned because it primarily operates larger regional aircraft. It has comparatively little exposure to fuel-guzzling 50 seat regional jets — hated by the major airlines today — unlike top competitor SkyWest.

Moreover, Republic’s regional operation is growing. The company is almost finished phasing in 32 Bombardier Q400 aircraft flown for United Continental Holdings Inc (NYSE:UAL). This summer, Republic will begin operating the first of what will ultimately be 47 Embraer SA (ADR) (NYSE:ERJ) 175 aircraft for American Airlines. At the end of 2013, Republic will have 250 aircraft in fixed-fee service, up from just 185 in mid-2012.

The stability of the fixed-fee business, where revenues are locked in far in advance, means that growth leads to immediate improvement in earnings. Republic Airways Holdings Inc. (NASDAQ:RJET) is thus all but assured of producing earnings growth for the next two years, yet it trades for a single-digit earnings multiple. This seems like a compelling value investment opportunity.

Don’t flip out!
The case of Republic shows why paying too much attention to the markets can be a bad thing. While Republic stock has been stuck in a holding pattern for several months, this is really due to investors feeling let down by the slow pace of the Frontier sale negotiations. Once the separation is complete (through a successful sale or a spinoff), investors will start paying attention to Republic’s strong fundamentals again. After that happens, Republic stock is likely to zoom higher.

The article Republic Airways Is Stuck in a Holding Pattern originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings . Adam Levine-Weinberg has the following options: Long Sep 2013 $33 Puts on United Continental Holdings and Long Aug 2013 $10 Calls on Republic Airways Holdings (NASDAQ:RJET). The Motley Fool recommends Embraer-Empresa Brasileira. The Motley Fool owns shares of SPIRIT AIRLINES INC.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.