Wolfe Research Upgrades Allegiant Travel Company (ALGT) to Outperform

Wolfe Research analyst Scott Group upgraded Allegiant Travel Company (NASDAQ: ALGT) from Peerperform to Outperform with a price target of $108.00.

The analyst comments "Transformational Acquisition. Last week, ALGT announced it will acquire SNCY in a cash/stock deal. The deal will boost ALGT's revenue by nearly 45% with a clear path back to double-digit margins. ALGT will pay <6x our C26 EBITDAR estimate for SNCY. We don't foresee regulatory issues with a combined domestic market share of just 3% and only 1 overlapping route. So, we expect the deal to close sometime in 2H:26. ● Material EPS Accretion. As shown below, we estimate 6% EPS accretion for ALGT prior to synergies. ALGT expects $140M of net synergies over the next 3 years. Assuming one-third of these synergies next year implies ~20% EPS accretion in C27, while the full $140M of synergies implies 50% EPS accretion. So relative to ~$4.50 of Airline-only EPS in C25, we estimate that ALGT's earnings can basically triple to ~$13.50 of EPS at full run-rate synergies by C29. ● Compelling Strategic Rationale. The combination of these 2 low-utilization airlines has always made sense, especially with ALGT's Sunseeker saga now behind us. Including synergies, we expect solid double-digit operating margins, which should support a higher valuation. Meanwhile, SNCY's strong free cash flow will help fund ALGT's order book. We also see growth opportunities from current ALGT locations into/out of Minneapolis (under-utilized for SNCY midday) and to SNCY's international destinations. SNCY's cargo and charter business and strong 1Q earnings seasonality should also smooth out quarterly earnings for ALGT. Meanwhile, the high stock component (nearly 80%) will limit balance sheet leverage for ALGT (less than 3x net leverage), while the higher share count should increase liquidity for the stock and help reduce ALGT's highend EPS volatility with such a low share count. Thus, there's a lot to like about this deal. ● Upgrading to Outperform. Applying a 10x target P/E multiple to our pro forma C27 EPS estimate of $10.84 (including one-third synergies), we arrive at our new $108 target price."

For an analyst ratings summary and ratings history on Allegiant Travel Company click here. For more ratings news on Allegiant Travel Company click here.

Shares of Allegiant Travel Company closed at $89.95 yesterday.

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