Spirit Airlines (SAVE) Slides After Revenue Guidance Lowered
Shares of domestic airline Spirit Airlines (SAVE: Charts, News) plunged last Friday, after being struck by a downgrade, rising fuel costs and concerns regarding the impact of the hurricane season on the company's bottom line. Spirit Airlines operates in 48 airports across the United States, the Caribbean and Latin America.
Last Thursday, Spirit Airlines announced that it increased its revenue passenger miles by 18.9% over the previous year, while its capacity rose by 20.5%. Daily Chart
However, CEO Ben Baldanza also reported that the company would post a revenue decrease between 2.5% to 4.5% due to more favorable taxes in 2011 and lost traffic due to Hurricane Isaac. Last year, a federal excise tax in the third quarter benefited the company, boosting its revenue per seat mile by 28.4%. Hurricane Isaac contributed to a decrease in the airline's load factor by 1.2 percentage points to 86.5%. Baldanza stated that if these two factors had been excluded, then year-over-year figures would have been higher. Spirit Airlines also announced that it would begin operating in Baltimore/Washington International Thurgood Marshall Airport, with new non-stop routes to Fort Lauderdale and Dallas/Fort Worth. The last time Spirit Airlines reported earnings, on July 24, the company posted earnings of 49 cents per share, topping the consensus estimate by 2 cents. Revenue rose by 25.5%. Shares initially rallied for several days on the news, but were quickly struck down by inclement weather in the Gulf of Mexico and rising fuel costs. Analysts at Dahlman Rose lowered its price target on Spirit Airlines from $27 to $24, but maintained its "buy" rating on the stock. Analysts at Raymond James Financial also downgraded the stock from "market perform" to "outperform." Raymond James cited "weakness in some booking channels" which had caused it to "overestimate" the company's profitability. However, analysts at Imperial Capital remained bullish on the stock, raising its price target to $44, implying that shares would more than double from current levels. Last Thursday, the Fed finally revealed its long-awaited plans for QE3, which caused markets to surge. Commodities, including oil, rallied strongly, which has caused some analysts to suggest shorting airline stocks, which are severely dependent on lower oil prices to maintain their fragile margins. Smaller airlines, such as Spirit Airlines, may be the first to fall if the inverse trend between airline stocks and rising commodities repeats, as it did in late 2007. Like many of its industry peers, shares of Spirit Airlines appear cheap on a fundamental basis, trading at 6.8 times forward earnings with a 5-year PEG ratio of 0.5. However, the company's future remains murky, as macro concerns, QE3 and unpredictable commodity costs all weigh heavily on the stock. The stock does not pay a dividend. Despite the recent plunge, Spirit Airlines has handily outperformed its larger peer Southwest Airlines (LUV
) over the past twelve months, but has underperformed its comparable peer U.S. Airways (LCC
). Other News About SAVE Spirit Airlines Downgraded to Market Perform
Spirit Airlines gets downgraded after decreasing its revenue guidance. Spirit Airlines Traffic Up in Spite of Hurricane
Spirit manages to post an increase in traffic despite Isaac's wrath. Other Stocks in the News Southwest Airlines To Spread Its Wings Overseas
Southwest expands overseas to compete in the big leagues. US Airways Shares Up on American Merger Talk
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Published on Sep 17, 2012
By Leo Sun