On Monday, Citi updated its stance on Frontier Group Holdings Inc (NASDAQ:ULCC), increasing the price target to $8.00, up from the previous $4.75, while keeping a Neutral rating on the stock. The revision reflects Frontier Airlines' improved operational performance, which has exceeded market expectations.
Frontier Airlines has been adjusting its route strategy, moving away from some leisure markets and entering new routes with higher fare potential. This move is aimed at steering the ultra-low-cost carrier towards its operational objectives. The airline's success in this endeavor hinges on its ability to avoid triggering fare wars with larger airlines and on maintaining stable fuel prices.
The airline's operational strategy is seen as a positive shift, but Citi remains cautious, maintaining a Neutral/High Risk rating. The firm points to Frontier's less robust free cash flow (FCF) profile compared to competitors like Delta. Additionally, Citi notes that Frontier's financial reporting includes sale-leaseback gains in its EBIT calculations, which may overstate the airline's operational profitability in comparison to its U.S. peers.
Citi's updated price target suggests a more optimistic view of Frontier's potential to reach its operational goals under its current strategy. However, the firm's neutral stance indicates that there are still factors that could pose risks to the airline's financial performance.
Investors and market watchers will likely monitor how Frontier's strategic route changes impact its market position and whether the airline can sustain its operational trajectory without adverse effects from competition and fuel price volatility.
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