UPDATE: Seaport Global Securities Downgrades Spirit Airlines (SAVE) to Neutral
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Seaport Global Securities downgraded Spirit Airlines (NYSE: SAVE) from Buy to Neutral.
The analyst comments "We're walking away from SAVE's 4Q20 earnings release concluding that while 4Q results and a 1Q21 revenue outlook are as we expected, risk/reward is balanced at this point, hence our downgrade to Neutral (from Buy) and the withdrawal of our target price (consistent with Seaport Global practices on Neutral rated stocks). Shares have ripped, up 33.7% YTD and up 366% vs a 52-week low, and the stock now trades ~5% above our prior $31 target price which we view as fully valued on our 2022 outlook; Eg. at 13.1x our 2022 EPS, the stock is trading towards the high end of a historical range of 9x-14x over the 2014-2019 timeframe. When we initiated in June 2020, we pointed out that SAVE was a better recovery story than investors appreciated given its focus on domestic leisure traffic which we argued would lead the demand recovery, and, given that SAVE's steep cost advantage was leading to share gains in core markets at a time when others are too weak to fight back. What's changed: Valuation of course, and a 2021 profit expectation that has fallen sharply on the COVID surge and international travel restrictions now impeding the recovery. No change to our view that SAVE likely loses $1.55/share in 2021 (vs our $1.15 EPS expectation at the time of our June 2020 initiation). The biggest risk to our downgrade: domestic COVID testing which would put balance sheets across the industry at greater risk; increased ULCC competition domestically from new start-ups; and conversely to the upside, a short squeeze if COVID cases continue to fall and demand accelerates sharply."
Shares of Spirit Airlines closed at $31.30 yesterday.
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