Spirit Airlines Has Downside Over Near-Term, Morgan Stanley and Cowen Warn

In separate reports published Tuesday, both Morgan Stanley analyst Rajeev Lalwani and Cowen analyst Helane Becker mentioned that Spirit Airlines Incorporated SAVE was facing stiffer competition and a challenging pricing environment. Morgan Stanley analyst Rajeev Lalwani maintained an Overweight rating on the company. Although investors were expecting a negative revision by Spirit Airlines, "the extent of it surprised to the downside." The company reduced its operating margin guidance for 2Q15 to 21.0-21.5 percent and for 2015 to 21.5-23.0 percent, below the Morgan Stanley estimates of 24.4 percent and 23.6 percent, respectively. Most of the downward revision for 2Q was due to "adverse weather events that resulted in the cancellation of over 500 flights and a loss of ~$20 million for the quarter," Lalwani said. "As we look towards 3Q, SAVE's guidance suggests incremental downside risk to upcoming PRASM guidance...However, we would still highlight that potential capacity cuts could serve as an offset to weak revenue trends as we enter the back-half of the year for all carriers, SAVE included." Cowen analyst Helane Becker maintained a Market Perform rating on Spirit Airlines, while reducing the price target from $74 to $65. Becker explained that the company's pricing had been under pressure due to competitor actions in two of their major markets, namely Chicago and Dallas. Even against a weak pricing environment, the company had increased capacity plans for 4Q15, "which seems to be aggressive." Becker further added, "We are concerned about the margin outlook, which is lower than prior guidance and appears to be related to increased flying during off peak times." The EPS estimates for 2Q15, 2015 and 2016 have been reduced from $1.22 to $1.01, from $4.80 to $4.20 and from $5.35 to $5.10, respectively.