Raymond James downgraded ExpressJet Holdings (XJT ) to market perform from outperform.
Analyst James Parker says he downgraded because ExpressJet is only 4% below his $16 target, which is based on shares trading at nine times his $1.78 2005 earnings per share estimate. Given the regional carrier's anticipated decline in 2005 earnings per share, Parker says he doesn't have a reason to raise his target.
He thinks ExpressJet's earnings per share for 2005 will drop 18% year-over-year, as a result of an anticipated drop in its operating margin. Parker notes this is because under the company's capacity purchase agreement with Continental Airlines, its operating margin in 2005 is expected to be about 10%, although it could realize some modest incremental margin from performance incentives.
Parker sees $1.80 in 2003 earnings per share, and $2.18 earnings per share in 2004.