On Tuesday, BofA Securities revised its outlook on Spirit Airlines (NYSE:SAVE), adjusting the price target down to $3.25 from the previous $4.00 while retaining an Underperform rating on the stock. The adjustment follows Spirit Airlines' guidance indicating weaker than expected revenues for the second quarter of 2024, with unit revenues projected to decline in the high-single digits. This forecast contrasts with BofA's initial estimate of a 2.6% decrease and the general market expectation of flat revenues.
The airline's performance has been inconsistent, with its first-quarter outlook initially surpassing expectations. However, the latest guidance for the second quarter has raised concerns about the company's financial health, especially considering the significant debt maturities of $1.1 billion in 2025 and $500 million in 2026. Spirit Airlines is reportedly in the preliminary stages of discussions with creditors to find a resolution.
The anticipated weaknesses in the upcoming quarter are attributed to several factors, including increased capacity aimed at leisure travel, reduced demand during off-peak periods, and challenges in Latin American markets. These headwinds have prompted BofA to revise its 2024 earnings per share (EPS) estimate for Spirit Airlines to a loss of $3.16, down from the previously projected loss of $2.91.
The revised price target of $3.25 reflects the updated earnings estimates and the airline's ongoing negotiations with creditors regarding its looming debt maturities. BofA's reaffirmation of the Underperform rating suggests a cautious outlook on the airline's stock amidst the current financial challenges.
InvestingPro Insights
Following BofA Securities' revised outlook on Spirit Airlines, it's crucial to consider the financial metrics and market performance of the company. According to InvestingPro data, Spirit Airlines has a market capitalization of $366.83 million and is trading at a low Price / Book multiple of 0.36 as of Q1 2024. This could indicate that the stock is undervalued relative to its book value, potentially offering an attractive entry point for value investors. However, the company has shown a gross profit margin of 13.95%, which may raise concerns about its operational efficiency.
InvestingPro Tips highlight several points of interest for potential investors. Spirit Airlines operates with a significant debt burden and may have trouble making interest payments on its debt, which aligns with the concerns raised by BofA regarding the airline's debt maturities. Additionally, the stock has fared poorly over the last month, with a 1-month price total return of -24.38%, and it's trading near its 52-week low, which might suggest a bearish sentiment in the market.
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