Raymond James Upgrades Spirit Airlines To Strong Buy, Weakness Has Created Entry Point With 49% Upside

Shares of Spirit Airlines Incorporated SAVE are down 13 percent since July 5. While the recent weakness in shares has created an attractive entry point, the company has tailwinds ahead, Raymond James’ Savanthi Syth said in a report. She upgraded the rating on Spirit Airlines from Outperform to Strong Buy, with a price target of $59.

Despite the lack of near-term catalysts and Zika like remaining a headline risk, the recent pullback in shares have resulted in ~11 percent downside and ~49 percent upside, analyst Savanthi Syth mentioned.

Near Term Catalyst

Domestic unit revenue trends have been under pressure and pricing has deteriorated due to oversupply. Syth noted that the y/y pressures could abate going ahead due to some moderation in industry capacity and easier comps.

Tailwinds

Spirit Airlines is expected to reduce its capacity growth from ~25 percent in 1H16 to ~15 percent in 2H16E and ~17 percent in 2017. Moreover, competitive seat growth is also moderating from 6 percent in 2015 to 3 percent in 2016, and could likely reduce to 2 percent in 1Q17. “Along with easing comparisons, this should support moderating RASM declines,” the analyst commented.

Syth added that the concerns over Spirit Airlines’ new market strategy and ULCC overlap appears overdone.

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