Morgan Stanley Bullish On Controladora Vuela's 'Strong Growth Prospects'

"With VLRS shares off ~15 percent from their peak this year, we see a good entry point. The resilience of the Mexican air market and Volaris' strong position have led us to revisit our longer term assumptions," analyst Josh Milberg wrote in a note.

The analyst boosted his 2015–2019 estimated traffic CAGR estimate by 200bps to 16 percent and now sees four-year EBITDA CAGR from 2015–2019 of 21 percent.

"We believe the company will be able to maintain low teens EBIT margins in 2017, despite a weaker MXN and lower anticipated sale lease back gains next year," the analyst highlighted.

Related Link: Volaris Reports Class Action Lawsuit Filed Against Company And Officers Alleging Securities Violations

The analyst also hailed Volaris' success in stimulating demand with its bus conversion strategy and its focus on serving the VFR (visiting friends and relatives) segment.

Milberg now assumes Volaris' capacity and traffic grow at average levels of 12/13 percent from 2017 to 2019 versus prior estimates of 10/11 percent. Morgan Stanley economists forecast Mexican GDP to grow 2 percent in the next couple of years.

"With oil prices where they are (50+ percent below its ~$100 peak in 2014) and with still low air travel penetration in Mexico, we don't see any strong case for believing that it can't stay at these levels in the next 2–3 years," Milberg added.

At time of writing, shares rose 1.26 percent to $18.50.