Allegiant Knocked To Market Perform By Raymond James; Stock Falls 9%

Raymond James’ Savanthi Syth believes TRASM recovery is likely to take longer than anticipated for Allegiant Travel Company ALGT, “while cost pressures during the transition to a single fleet type are likely to be greater, thus, capping the upside to earnings in the near term.”

Syth downgraded the rating on the company from Outperform to Market Perform.

TRASM Concerns

“We continue to favor Allegiant’s differentiated and more defensible business model and believe nicely improving TRASM trends will buoy investor sentiment and shares,” the analyst mentioned.

Allegiant continues to witness improving core trends, similar to its U.S. peer, although the benefits are likely to be slightly delayed due to the company’s longer booking curve.

Management indicated that scheduled Q4 service unit revenue (TRASM) is tracking a at decline of 5.5–7.5 percent year-on-year, including the Hurricane Matthew drag and the drag due to the timing of the December holidays.

When Will It Improve?

Syth expects the company’s year-on-year TRASM to turn positive only in Q217, driven by steady improvement in TRASM trends, which will in turn likely be viewed positively by investors.

The analyst now expects further margin compression, driven by increased non-fuel unit costs, as well as accelerated depreciation from the announced retirement of the MD-80.

The EPS estimates for Q4:16, 2017 and 2018 have been lowered.

At last check, Allegiant was down 9.71 percent at $139.