On Tuesday, Susquehanna adjusted its view on Allegiant Travel Company (NASDAQ: NASDAQ:ALGT), reducing the price target to $55 from the previous $60, while maintaining a Neutral rating on the stock. The firm cites a tough operational climate for Allegiant and its ultra-low-cost carrier peers going into the second half of 2024 and the 2025 fiscal year.
This outlook is based on a combination of factors including increased U.S. domestic capacity, which is expected to rise by 4% year-over-year in the latter half of 2024, a stagnation in leisure travel demand amid a weakening economic environment, and a noticeable shift in consumer preferences toward premium travel options. In 2023, bookings for premium economy seats on U.S. domestic flights surged to more than double the levels seen in 2019.
The analyst pointed out specific challenges for Allegiant, noting that recent labor agreements in the industry have resulted in significant wage increases of over 25% compared to pre-pandemic levels. With Allegiant's own pilot union contract still open for amendments, there is a perceived high risk to the company's cost per available seat mile excluding fuel (CASM-ex) and profit margins looking forward to 2025.
Additionally, the integration of Boeing (NYSE:BA) MAX aircraft into Allegiant's current fleet, which consists of 34 A319s and 92 A320s, is expected to introduce further cost pressures as the airline manages a mixed fleet.
Furthermore, while the December 2023 opening of the Sunseeker Resort is seen as a long-term strategic asset for Allegiant, Susquehanna anticipates that expanding the resort business will be a gradual process. The firm also projects that overall revenue per available room (RevPAR) growth in the U.S. will likely be subdued into 2025, suggesting a cautious outlook for this segment of Allegiant's operations.
In other recent news, Allegiant Travel Company has seen several notable developments. Raymond James recently adjusted their financial outlook for Allegiant, reducing their price target from $71 to $68 while maintaining an Outperform rating. The reduction was due to Allegiant's weaker than expected 2024 earnings forecast.
Despite this, Raymond James maintains optimism for a recovery in earnings by 2025, based on Allegiant's ultra-low-cost carrier model and potential benefits from ongoing corrective actions.
Simultaneously, Allegiant's Chief Information Officer, Robert P. Wilson III, announced his retirement set for July, initiating a process to select a successor. In terms of financial performance, Allegiant reported a challenging first quarter in 2024, with a decline in operating income due to increased expenses and a drop in April passenger traffic.
Furthermore, the U.S. Treasury Department announced its intention to sell warrants it holds in various U.S. airlines, including Allegiant, aiming to gather a minimum of $492 million. This is part of a repayment plan for COVID-19 relief aid given to the airlines.
Meanwhile, TD Cowen adjusted its outlook on Allegiant, reducing the price target from $65.00 to $60.00, while maintaining a Hold rating, reflecting the latest financial data and management's comments on future expectations.
InvestingPro Insights
As Allegiant Travel Company (NASDAQ: ALGT) navigates through a challenging operational climate, real-time data from InvestingPro provides a nuanced view of the company's financial health and market performance. Allegiant's market capitalization stands at $890.94 million, reflecting the market's current valuation of the company. Despite the tough economic headwinds, Allegiant has demonstrated significant resilience with a notable return over the last week, as the stock price bounced back by 12.13%. This could indicate investor confidence in the company's ability to weather the storm in the short term.
An InvestingPro Tip highlights that Allegiant operates with a significant debt burden, which may impact its financial flexibility, especially in the current environment of rising costs and wage pressures. Additionally, the company's short-term obligations exceed its liquid assets, which could pose challenges in managing cash flows effectively. For investors seeking a deeper dive into Allegiant's financials and strategic positioning, additional InvestingPro Tips are available, offering critical insights that could inform investment decisions. With the promo code PRONEWS24, readers can access these insights and benefit from up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
Looking at the broader picture, Allegiant's P/E ratio currently stands at 16.03, suggesting a market sentiment that balances the company's earnings with its stock price. While analysts predict the company will be profitable this year, the valuation implies a poor free cash flow yield, according to another InvestingPro Tip. For those interested in exploring the full spectrum of analysis, there are over 10 additional InvestingPro Tips available that could provide valuable context to Allegiant's operational and financial complexities.
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