Sometimes it takes a while for a plan to come together, especially with smaller, underfollowed value names. Harbor Diversified (HRBR) is one such story that may have legs.
If you've never heard of Harbor Diversified, I hadn't either until it popped up on one of my deeper value screens last January. The name of the company is not all that revealing, but Harbor Diversified is a holding company for Wisconsin Airlines, which owns and operate a fleet of 64 Bombardier CRJ200 jets.
When I took my position, HRBR shares were trading for just under $2, but the company had net cash and short-term investments of $1.38 a share as well as those 64 jets. At the time, Harbor Diversified was trading at just 0.79x tangible book value. The company was also very profitable even after you stripped out the $66 million it received in pandemic-related government payroll support last year.
That begged the question as to why Harbor Diversified's shares were so cheap on a whole host of measures. The answer was the uncertainty of the company's relationship with United Airlines (UAL) , of which it has been a regional partner. United had announced last summer that it was considering discontinuing use of CRJ 200 jets and Harbor Diversified's agreement with UAL was set to expire next February.
Harbor Diversified shares were range-bound for much of 2022. At least, that was the case until this past Tuesday, when a new five-year agreement with American Airlines (AAL) was announced. Starting next March, Harbor Diversified will fly for American under the American Eagle moniker out of Chicago. Initially, 40 of Harbor Diversified's jets will be deployed, but American can ramp that up to 60. With pilots in short supply, this also seems like a good move for American.
Harbor Diversified is up 31% over the past week on this news and 35% higher year to date. The company earned 24 cents a share for its most recently reported quarter on revenue of $78 million. It ended the quarter with $158 million in cash and short-term investments and $71 million in debt for net cash/short-term investments of $87 million, or $1.38 per share fully diluted (I've included the company's Class C Convertible Redeemable Preferred Stock, immediately redeemable into 16.5 million shares, in these calculations). The current market cap is just $136 million.
If nothing else, Harbor Diversified has bought itself considerable time, and we'll see if its shares can head further skyward from here.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider HRBR to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
