Analysts Appear Slightly Worried Over Spirit Airlines Before Earnings

Shares of Spirit Airlines Incorporated SAVE surged 2.2 percent on Thursday trading, and continue to surge in after-hours, ahead of the announcement of the company’s second quarter financial results, scheduled for before the market opens on Friday. According to Estimize, the Street is expecting to see a year-over-year growth in earnings of more than 10 percent, modeling earnings of $1.01 per share, on revenue of $553.31 million. Let’s take a look at what some major Wall Street research firms are saying about the airline operator before the report.

Cowen And Company

Analysts at Cowen are modeling earnings in line with the Street’s consensus. The highlight that the company “decreased margin guidance for 2Q15 and full-year 2015 due to weather cancellations in 2Q15 and a continued weak pricing environment for 2015.”

They also note that Spirit is “caught” in the extremely competitive Dallas and Chicago markets, where larger airliners have been “jockeying for share.” In addition, the company increased 4Q15 capacity; experts see this as an aggressive move given the pricing environment. Consequently, they reiterate their Market Perform rating and trim their price target to $65.00 from $74.00.

Imperial Capital

Imperial Capital is considerably more bullish, and anticipates earnings of $1.19 per share for the second quarter, on revenue of $554 million. The analysts note that the recent Selloff in the stock presents an alluring long-term opportunity for investors.

Having said this, the firm reiterated an Outperform rating, but reduced its one-year price to $85.00 from $100.00 to reflect near-term pricing pressure. They assure that, while “Management indicated competitor pricing activity continues to pressure revenue trends,” they “still expect these trends to moderate through the remainder of 2015.”

Morgan Stanley

For its part, Morgan Stanley thinks increased competition is driving another revision. The analysts expect an EPS reduction of approximately 10 percent to consensus estimates, which they believe “may be indicative of potential downside to shares near-term.”

Despite the probable correction in the shares, however, the firm still prefers Spirit Airlines over other airline stocks as this ultra-low-cost carrier “should be able to capitalize on the improved industry structure longer-term.”

At 15-20 percent growth per year, Spirit provides investors with “the best capacity growth story in the group that is supported by market opportunities in excess of 500 as well as limited need to access the capital markets,” the experts conclude.

Credit Suisse

Last week, Credit Suisse analysts Julie Yates and Krishna Vege trimmed their EPS estimates for Spirit’s second quarter, from $1.09 to $1.01.

The experts note that the company was the first to warn of “fare compression in a lower fuel environment back in December, but up until early June the softness was confined to off peak periods.” More aggressive fare matching from American Airlines Group Inc AAL “extended compression to peak periods,” they add.