By Sam Boughedda
Frontier Group Holdings Inc (NASDAQ:ULCC) was upgraded to Outperform from Market Perform with a $15 per share price target by Raymond James analysts on Monday.
They said in a research note that the upgrade reflects an attractive risk-reward and the firm's increased conviction about the stock as a result of Raymond James' fare analysis and industry commentary that shows that seasonality explains the first quarter 2023 revenue shortfall vs. the firm's pre-4Q22 earnings release forecast.
"While our EPS outlook is unchanged, it reflects improving momentum throughout 2023," wrote the analysts. " Moreover, as noted previously, we see considerable upside to 2025+ earnings if the JetBlue-Spirit Airlines merger gets regulatory approval, leaving Frontier as the sole U.S. high utilization-ULCC."
Even so, Raymond James continues to believe clarity on the upside potential is 12 to 15 months out, with "near-term headlines likely negative."
"We see two notable risks for Frontier, beyond a Fed-induced demand slowdown (no evidence so far), potentially driving further cost pressure. The first is supply chain issues, albeit, with the industry similarly exposed, we suspect constrained capacity would drive improved pricing power. The other is the potential for elevated pilot attrition due to contract reset timing," explained the analysts.