This budget airline is growing quickly, but the stock still trades for less than 10 times forward earnings.
2019 has gotten off to a shaky start for many U.S. airlines. Stock market volatility, the threat of a trade war, and disruptions related to the grounding of the Boeing 737 MAX have all weighed on unit revenue growth.
However, none of these issues have had much of an impact on…
Spirit Airlines (NYSE:SAVE), thanks to the carrier’s all-Airbus fleet and its focus on serving price-sensitive leisure travelers. Nevertheless, Spirit Airlines shares have fallen about 13% since the beginning of 2019.
This has made Spirit Airlines stock a great bargain for investors. As the company carries out its growth strategy over the next few years, the stock could easily double (or more).
Spirit Airlines stock tanks despite strong profit growth
Late last month, Spirit Airlines reported that revenue per available seat mile (RASM) rose 4.1% in the first quarter. Total revenue skyrocketed 21.5% to $856 million. As a result, Spirit’s adjusted pre-tax margin increased to 8.6% from 5.6% a year earlier, while adjusted earnings per share nearly doubled to $0.84.
In conjunction with the earnings report, Spirit Airlines warned that it would incur additional costs beginning in the second quarter as it increases staffing to cope with runway construction in Fort Lauderdale (its biggest base of operations). It also said that severe storms in Florida around Easter weekend had triggered an unusual number of flight cancellations, leading to lost revenue and higher unit costs.
Despite these headwinds, Spirit Airlines expects RASM to rise about 5% this quarter, outpacing its projected 4.6% increase in nonfuel unit costs. With fuel prices still slightly lower than a year ago, Spirit remains on track for strong double-digit EPS growth.
Ample room for long-term earnings growth
The Wall Street analyst consensus currently calls for Spirit Airlines’ adjusted EPS to jump 29% to $5.67 this year, followed by a 12% increase to $6.37 in 2020. Indeed, EPS could continue rising at a double-digit compound annual growth rate for many years to come.
First, Spirit Airlines could…
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