Allegiant Travel's Valuation Is Holding Credit Suisse Analysts Back

• Shares of Allegiant Travel Company ALGT have appreciated 29.16 percent year-to-date, with a high of $233.98 on August 17.
• Julie Yates of Credit Suisse has initiated coverage of the company with a Neutral rating and price target of $228.
• Yates prefers to remain on the sidelines due to the expanding premium valuation, despite the company’s industry leading margins, robust balance sheet and shareholder returns, as well as 20 percent management ownership.

Analyst Julie Yates mentioned that 90 percent of Allegiant Travel’s routes do not face any competition, since the company focuses on underserved markets. Yates believes that this is a major reason for the outperformance of the shares, year-to-date.

“We too are attracted to ALGT's distinctive monopolistic model that insulates it from much of the competitive pressures plaguing other low-cost carriers,” Yates stated, while noting that the decline in unit revenues have been “self-inflicted,” with off-peak flights being added during the low fuel conditions.

Also, margins appear to have peaked in 2015, with management indicating that margins would trend close to 20 percent. “This target is longer term and assumes fuel rises meaningfully,” the Credit Suisse report said.

Yates expects the new co-brand credit card agreement and a potential labor resolution to prove to be catalysts for the stock.