Spirit (SAVE) Down 49.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Spirit (SAVE). Shares have lost about 49.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Spirit due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Spirit Airlines' Q4 Earnings Beat

Spirit Airlines’ earnings per share (excluding 6 cents from non-recurring items) of $1.24 surpassed the Zacks Consensus Estimate by 5 cents. However, the bottom line declined 10.1% on a year-over-year basis due to increased operating costs.

Additionally, this low-cost carrier announced delivery of nine new aircraft (seven A320neo and two A320ceo) during the fourth quarter 2019, which is in sync with its fleet modernization efforts. The company ended the year with 145 aircraft in its fleet.

Other Q4 Details

Operating revenues of $969.8 million edged past the Zacks Consensus Estimate of $969.1 million. The top line also improved 12.4 % year over year on the back of a 18.6% expansion in flight volume. Passenger revenues, which contributed 98.1% to the top line, increased 12.4% year over year as well. Additionally, revenues from other sources rose 11.3%.

Total operating revenue per available seat mile (TRASM: a measure of unit revenues) plunged 3.6% in the reported quarter. The downside was primarily caused by lower operating yields as load factor (% of seats filled by passengers) for the period was up by 30 basis points. Notably, traffic growth (17%) outweighed capacity expansion (16.6%) in the reported quarter. Moreover, average yield declined 3.9% in the October-December period.

Adjusted operating expenses increased 16.1% to $840.2 million, mainly due to increased flight volume and higher ground handling rates. Average fuel cost per gallon in the reported quarter fell 7.1% year over year to $2.10. Moreover, cost per available seat miles(CASM) dropped 0.2% in the reported quarter.

However, CASM, excluding operating special items and fuel (non-fuel unit costs) increased 3.3% year over year. Factors like increase in heavy maintenance amortization, maintenance, material and repairs as well as other operating expenses led to higher non-fuel unit costs.

Spirit ended the year with unrestricted cash, cash equivalents and short-term investments of $1.1 billion.

Outlook

The carrier anticipates capacity growth of 15% year over year for the first quarter of 2020. Economic fuel cost is projected to be $1.90 per gallon. Moreover, an effective tax rate of 25% is envisioned during the first quarter. Operating expense per available seat mile (excluding fuel) is predicted to increase 3.5-4.5%.

For 2020, capacity is projected to increase in the 17-19% range. Economic fuel cost is anticipated to be $2.05 per gallon and adjusted operating expense per available seat mile (excluding fuel) is predicted to increase in the 1-2% range.

For 2020, the company expects total capital expenditures to be $820 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 30.22% due to these changes.

VGM Scores

At this time, Spirit has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Spirit has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.