Stifel Sees Potential For A 20% Return In Allegiant

Allegiant Air parent company Allegiant Travel Company ALGT has been awarded Stifel's highest rating. 

The Analyst

Stifel analyst Joseph DeNardi upgraded Allegiant Travel from Hold to Buy and upped the price target from $150 to $200, suggesting roughly 20-percent upside from the $165.50 level at which the stock closed Friday.

The Thesis 

Allegiant Travel shares are trading at 13 times Stifel's 2019 earnings per share estimate of $15.50, DeNardi said in a Monday note. (See the analyst's track record here.) 

Stifel's estimate incorporates a 2.5-percent total operating unit revenue increase, 1-percent average decline in cost per available seat mile and a $2.15/gallon jet fuel price in 2018 and 2019. 

Against this backdrop, the company faces a relatively lower-risk revenue outlook, as 80 percent of its routes are in non-competitive markets, DeNardi said. The analyst projects that Allegiant's ramping revenue initiatives in 2018 — namely improved revenue management and increasing contributions from its co-branded credit card — contributing about 3 points to year-over-year unit revenue.

"An improving revenue outlook combined with lower operational risk and the prospects for compelling cost leverage in 2018/2019 gives us confidence in ALGT's margin profile both relative to its [ultra low cost-carrier] peers and on an absolute basis," DeNardi said.

Allegiant has stronger near-term revenue trends with less downside risk, even if competitive dynamics worsen, DeNardi said.  The company also has industry-best CASMx trends, he said. 

Price Action

Allegiant Travel is down about 7 percent over the past year.

At the time of writing, Allegiant Travel was rallying 2.48 percent at $169.60. 

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