Deutsche Bank Turns Bullish On Spirit Airlines

After downgrading shares of Spirit Airlines Incorporated SAVE in early October, Deutsche Bank is changing its flight plan. 

The Rating

Deutsche Bank analyst Michael Linenberg upgraded Spirit Airlines from Hold to Buy, citing a more stable fare environment, and raised the price target from $40 to $58.

The Thesis

A stable environment is important for the low end of the fare structure, which has historically been the domain of ultra-low-cost-carriers such as Spirit, Linenberg said in a Wednesday note. (See the analyst's track record here.) 

Spirit will keenly focus on improving its revenue production as it tackles higher labor costs, Linenberg said. 

Deutsche Bank said it expects a healthy GDP backdrop to benefit airline demand. Given that costs, primarily labor and fuel, are rising, the firm said revenue growth achieved through pricing and ancillary initiatives can soften cost concerns. 

All airlines will benefit from tax reform, although the degree to which each is impacted could vary, according to Deutsche Bank. The firm said it is maintaining its constructive stance on the sector.

The Price Action

Shares of Spirit Airlines are down about 23 percent year-to-date.

At the time of writing, the shares were rallying 1.48 percent to $45.16. 

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