Market Overview

Allegiant Travel Shares Outperforming Other Airliners Amid New Outperform Rating

Share:
Allegiant Travel Shares Outperforming Other Airliners Amid New Outperform Rating

Imperial Capital has started coverage of Allegiant Travel Company (NASDAQ: ALGT) with an Outperform rating and $164 price target, citing the company's differentiated low cost business model with strong growth prospects.

Allegiant is focusing on capturing customers from small cities, where there is little or no service, to attractive destinations and operates in a low cost structure to offer low fares.

Imperial said Allegiant's operating margins are the highest in the industry, despite concerns over contentious labor negotiations, an FAA safety review and its decision to add more off-peak flying due to low oil prices. The brokerage noted that most of these issues have now been resolved.

Related Link: Hurricane Matthew Could Disrupt Southeast Travel Plans For Weeks

"While ALGT now faces a number of operational and cost challenges as it transitions to a single aircraft type from its current mixed fleet, it plans to maintain lower capacity growth of 5–10 percent between FY17 and FY19," analyst Michael Derchin wrote in a note.

In addition, the airline attracts leisure customers with low fares then aggressively markets higher-margin vacation packages and ancillary products.

,p>Further, Derchin said mid-sized markets offers significant growth opportunity as many of these mid-sized cities, such as Cincinnati and Cleveland, were former hubs of the Big 3 (American Airlines Group Inc (NASDAQ: AAL), Delta Air Lines, Inc. (NYSE: DAL) and United Continental Holdings Inc (NYSE: UAL)) that have been "de-hubbed" following consolidation.

Meanwhile, Allegiant is transitioning to an all-Airbus fleet over the next few years. The company plans to retire its highly profitable but aging MD-80 fleet by FY19, and is replacing those aircraft with a combination of new and used A320s.

"Following the MD-80 replacement period, capacity growth is expected to resume between 10 percent and 15 percent per year as a result of ALGT's scalable business model and numerous profitable market opportunities," Derchin continued.

Derchin sees 20.2 percent system capacity (ASM) growth in the third quarter, 14.1 percent in fourth quarter, 9.9 percent in FY17 and 8 percent in FY18.

In addition, the analyst projects system TRASM to decline by (7.6 percent) in the third quarter, (5.6 percent) in the fourth quarter, (0.8 percent) in FY17 and increase by 1.0 percent in FY18.

The analyst's price target of $164 assumes approximately 6.5x estimated 2017 TEV/EBITDAR, and approximately 14.5x estimated 2017 EPS of $11.35.

At the time of writing, shares of Allegiant were up 0.99 percent to $143.77. Based on October 6's close, the $164 target price implies potential upside of 15 percent.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Latest Ratings for AAL

DateFirmActionFromTo
Feb 2021Deutsche BankUpgradesHoldBuy
Feb 2021Seaport GlobalDowngradesBuyNeutral
Jan 2021SusquehannaMaintainsNegative

View More Analyst Ratings for AAL
View the Latest Analyst Ratings

 

Related Articles (ALGT + AAL)

View Comments and Join the Discussion!

Posted-In: Analyst Color Long Ideas News Price Target Initiation Travel Analyst Ratings Movers Best of Benzinga

Latest Ratings

StockFirmActionPT
GNKJefferiesMaintains13.0
TDOCDA DavidsonMaintains275.0
ITRIOppenheimerMaintains127.0
CLHOppenheimerMaintains95.0
TDOCOppenheimerMaintains270.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
SPAC
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com