On Friday, Spirit Airlines (NYSE: NYSE:SAVE) shares experienced a reduction in its price target, which was set at $2.25, down from the previous $2.50. Susquehanna has maintained a Negative rating on the stock, citing a weaker than anticipated revenue and earnings per share (EPS) for the second half of 2024 and the full year 2025.
The firm expects Spirit Airlines to face continued challenges within the domestic US market, including a supply and demand imbalance leading to a weaker fare environment that could persist into the end of 2024.
This outlook has prompted a roughly 7% reduction in the revenue estimate for the latter half of 2024. The firm also anticipates that the airline's new revenue initiatives will take time to gain traction with customers.
For the full year 2025, Susquehanna has reduced its revenue estimate by approximately 3% to about $4.95 billion, which is lower than the previous estimate of roughly $5.12 billion and slightly below the consensus estimate of around $5 billion.
The adjustment reflects expectations of a competitive operating environment for US airlines and a slower customer adoption of Spirit's new revenue strategies.
The revised forecast also includes an adjusted EPS for 2025, now expected to be -$4.65, compared to the prior estimate of -$3.50 and the consensus of -$4.13. This change is partly due to the ongoing impact of Pratt & Whitney's aircraft on ground (AOG) issues.
Susquehanna's base-case assumptions for 2025 now include available seat miles (ASMs) decreasing by 8.5% year-over-year, total revenue per available seat mile (TRASM) increasing by 11% year-over-year, and cost per available seat mile excluding fuel (CASM ex) rising by 7.5% year-over-year to an absolute of approximately $0.0825.
Despite these challenges, the firm has raised its enterprise value to EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) multiple from 10.5x to 16.25x, indicating a longer than expected recovery period for Spirit Airlines' earnings.
The updated price target of $2.25 reflects the revised profit and loss projections, the new target multiple, and some changes to the cash flow assumptions.
InvestingPro Insights
As Spirit Airlines (NYSE: SAVE) navigates through a challenging period, investors are keenly observing its financial health and market performance. According to InvestingPro data, Spirit Airlines has a market capitalization of $307.75 million, which is reflective of the current valuation in the market. The company's Price / Book multiple stands at a low 0.38, showcasing that the stock may be undervalued in relation to its assets, which could be an attractive point for value investors.
Despite a significant dividend yield of 42.7%, an InvestingPro Tip cautions that the airline operates with a significant debt burden and may have trouble making interest payments on its debt. This is particularly concerning given the negative revenue growth reported over the last twelve months, with a -7.07% decline. Moreover, the company's stock has experienced a substantial price decrease over various time frames, with a one-year total return of -81.3%, underscoring the market's apprehension about the company's future.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available that delve into other aspects of Spirit Airlines' financial situation. These could provide further context to the company's performance and help investors make more informed decisions. For a complete set of tips, one can visit the dedicated InvestingPro page for Spirit Airlines at https://www.investing.com/pro/SAVE.
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