Is Spirit Airlines Fairly Valued?
Spirit Airlines (NYSE: SAVE) has seen mixed results in the past few years. At the end of 2015, the stock price dropped drastically, and ever since, the stock has traded in the range of $40 to $60. Although hurricanes hurt the airline industry last year, Spirit posted solid results. With increasing demand for low fare tickets and effective cost-management, we expect the company to post strong results in 2018 and have a $51 price estimate for the company’s stock, which is about 25% ahead of the current market price.
Detailed steps to arrive at our price estimate and the revenue calculations are outlined in our interactive dashboard. You can modify our assumptions to arrive at your own price estimate for the company.
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Our price estimate for Spirit Airlines is based on revenue projections of $3.2 billion for 2018. With demand for low-fare airline tickets increasing, the company’s ultra-low-cost carrier (ULCC) model has been efficient. The carrier has been consistently increasing its capacity and adding new routes, which is likely to continue in the near team. Additionally, Spirit’s non-ticket revenue will continue to grow at a steady rate. However, we expect Spirit to see some pressure on its margins, driven by a tough year-on-year comp and a likely increase in oil prices
Our revenue estimate of $3.2 billion for 2018 is arrived at by multiplying available seat Miles (ASM), load factor, and average yield. The ASM will be boosted by additional fleets and the newly added routes. We expect Spirit Airline’s available seat miles (ASM) to reach 35.5 billion in 2018, a 20% year-on-year increase. With average yield and load factor expected to be almost stable at 10.75 cents and 83.1% respectively in 2018, 35.5 billion ASM brings us to revenue of $3.2 billion.
Our valuation methodology above suggests that Spirit Airlines will post solid results in 2018. The company’s P/E ratio, currently lower than that of the industry, will likely improve in 2018.
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