Tuesday, UBS resumed coverage on shares of Allegiant Travel Company (NASDAQ:ALGT) with a Neutral rating and a price target of $83.00. The firm highlighted that Allegiant's profit and loss statement has been under pressure from lower aircraft utilization and increased staffing costs due to delays in Boeing (NYSE:BA) MAX aircraft deliveries, as well as losses from its Sunseeker resort. These factors are expected to improve in the coming year.
Allegiant is anticipated to see aircraft utilization during peak periods return to levels similar to those in 2019, bolstered by better pilot availability. This is particularly significant for Allegiant's business model, which is heavily influenced by seasonal leisure demand. The arrival of MAX aircraft should also allow the company to better manage the $30 million in excess staffing costs it has incurred, potentially reducing cost per available seat mile (CASM) by 1.5-2.0% in 2025.
The analyst also pointed to potential enhancements to Allegiant's revenue booking tool, Navitaire, and new initiatives in loyalty and premium offerings as contributors to a forecasted earnings per share (EPS) increase to $5.48 in 2025 and $8.35 in 2026, up from an estimated $0.91 in 2024.
Despite these positive outlooks, UBS noted that the current stock price reflects a 14x price-to-earnings (P/E) multiple, suggesting that the market has already priced in the potential for earnings growth.
In other recent news, Allegiant Travel Company experienced a notable decrease in both passenger traffic and revenue passenger miles in October 2024, largely due to the impact of hurricanes Helene and Milton. These weather disruptions resulted in nearly 1,000 flight cancellations from late September through early January. Despite these challenges, Allegiant reported a positive operating income for Q3 2024 and anticipates a Q4 airline operating margin of around 7%.
Goldman Sachs (NYSE:GS) has resumed coverage on Allegiant, predicting significant profitability improvement by 2025, based on expected pilot staffing enhancements and reduced financial burden from the company's Sunseeker hotel business.
However, Allegiant's pilots, represented by the Teamsters union, voted in favor of a strike to negotiate better compensation and work conditions, which could potentially affect pilot retention and the anticipated improvements in aircraft utilization.
These recent developments come as Allegiant reported a slight dip in its third-quarter revenue to $562.2 million, down from $565.4 million in the previous year. Despite these circumstances, Allegiant's loyalty programs and ancillary revenue initiatives saw a 20% increase, indicating resilience amidst these recent developments. The company continues to monitor booking trends and will provide updates as necessary.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS's analysis of Allegiant Travel Company (NASDAQ:ALGT). The company's market cap stands at $1.49 billion, with a P/E ratio (adjusted) of 213.72 for the last twelve months as of Q3 2024. This high P/E ratio aligns with UBS's observation that the market has priced in potential earnings growth.
InvestingPro Tips highlight that 6 analysts have revised their earnings upwards for the upcoming period, suggesting growing optimism about Allegiant's financial prospects. This corresponds with UBS's forecast of improved EPS in 2025 and 2026. Moreover, the company's strong return over the last three months, with a 97.16% price total return, indicates investor confidence in Allegiant's recovery strategy.
However, it's worth noting that Allegiant operates with a significant debt burden, which could impact its financial flexibility as it navigates the challenges mentioned in the UBS report. The company's revenue for the last twelve months as of Q3 2024 was $2.50 billion, with a gross profit margin of 22.23%, reflecting the operational pressures discussed in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Allegiant Travel Company, providing a broader perspective on the company's financial health and market position.
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