Susquehanna has adjusted its financial outlook for Spirit Airlines (NYSE: NYSE:SAVE), decreasing the price target to $1.50 from the previous $2.25.
The firm maintained its Negative rating on the airline's stock. The revision follows a detailed analysis of the company's future earnings and operational performance.
The analyst from Susquehanna noted an improved forecast for the second half of 2024, with the adjusted earnings per share (EPS) estimate slightly raised to -$5.05 from -$5.10, citing a marginally better operating margin. Despite this slight uptick, the overall outlook remains cautious, particularly for the fiscal year 2025.
For FY25, the firm has reduced its adjusted EPS estimate by approximately 11% to -$5.15. This downward revision is based on expectations of a weaker operating and profit margin, alongside a more pessimistic view on the airline's capacity. Spirit Airlines is now expected to see available seat miles (ASMs) decrease by 10.5%, a steeper drop than the previous estimate of 8.5% and below the consensus forecast.
Cost per available seat mile excluding fuel (CASM-ex) is projected to rise by 10.5%, which is higher than both the previous estimate of 7.5% and the consensus of 5.2%. This indicates increased costs for the airline that are not related to fuel expenses.
The report also mentions a reduction in the EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) multiple used for valuation purposes. The multiple has been lowered by approximately 0.25 times to 16 times. This adjustment reflects the analyst's view of a challenging operating environment for Spirit Airlines and its ultra-low-cost carrier peers going into the year 2025.
In other recent news, Spirit Airlines has been in discussions with bondholders about potential bankruptcy terms, amid financial struggles and an upcoming critical deadline to refinance $1.1 billion in loyalty bonds due next year.
Despite the company's challenges, analysts including Savanthi Syth from Raymond James anticipate that Spirit might negotiate with its creditors to avoid bankruptcy. Additionally, TD Cowen has maintained a Sell rating on Spirit Airlines shares, emphasizing the importance of the company's upcoming financial maneuvers, particularly concerning its loyalty bonds due in 2025.
The company has also been dealing with the fallout from a collapsed $3.8 billion merger deal with JetBlue Airways (NASDAQ:JBLU) and has not been profitable in five of the last six quarters. In response, Spirit has implemented cost-cutting measures and sought to attract premium travelers. However, it still faces significant hurdles in restructuring its costs.
Meanwhile, Elliott Investment Management is seeking a special meeting for a leadership shake-up at Southwest Airlines (NYSE:LUV). The firm, a significant shareholder in Southwest Airlines, is advocating for changes in the company's leadership and has proposed a new board committee to review business operations. Despite Elliott's pressure, Southwest has shown support for CEO Bob Jordan.
InvestingPro Insights
Recent InvestingPro data aligns with Susquehanna's cautious outlook on Spirit Airlines (NYSE:SAVE). The company's financial metrics paint a challenging picture, with a negative P/E ratio of -0.33 over the last twelve months as of Q2 2024, indicating ongoing profitability issues. This is further underscored by a significant revenue decline, with a -10.58% quarterly growth rate in Q2 2024.
InvestingPro Tips highlight additional concerns. The company is operating with a significant debt burden and may have trouble making interest payments, which could exacerbate its financial struggles. Moreover, Spirit Airlines is quickly burning through cash, a factor that could impact its operational flexibility and future growth prospects.
The stock's performance has been particularly weak, with a -61.3% total return over the past six months and an -88.17% return over the last year. This aligns with the InvestingPro Tip noting that the stock has taken a big hit over the last week and has fared poorly over the last month.
For investors seeking a more comprehensive analysis, InvestingPro offers 18 additional tips for Spirit Airlines, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.