Imperial Capital Starts Spirit Airlines (SAVE) at Outperform
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Imperial Capital initiates coverage on Spirit Airlines (NASDAQ: SAVE) with a Outperform rating and a price target of $51.00, suggesting 22% upside.
Analyst Michael Derchin commented, "While SAVE has a successful ultra-low cost model, with among the highest pretax margins in the industry on a consistent basis, the stock has declined over 50% from its December 2014 highs. The primary reason for the weakness in its shares, in our view, is investor concerns regarding the domestic competitive environment. Over the past two years, the Big 3 (American Airlines [AAL], Delta Air Lines [DAL], and United Airlines [UAL]), as well as Southwest Airlines (LUV), matched SAVE's ultra-low cost carrier fares more aggressively than in previous years."
The analyst added, "We attribute the increased competition to three factors: 1) lower jet fuel prices, which increased marginal capacity, 2) the sunset of the Wright Amendment, which increased long haul capacity from Dallas Love Field and 3) a greater focus on attracting domestic leisure customers, as domestic and international business travel demand weakened. Concerns about SAVE's competitive position are over-done, in our view, as evidenced by its superior pretax margins despite increased competition. In fact, we believe SAVE’s recent competitive experience is not dissimilar to those faced by LUV and Ryanair (RYAAY) during the early stages of their growth plans, which turned out to be tremendous buying opportunities at the time."
Shares of Spirit Airlines closed at $41.88 yesterday.
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