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Bull of the Day: Allegiant Travel Company (ALGT)

Benjamin Rains

Shares of Allegiant Travel Company (ALGT) have soared in 2019 to easily outpace the broader Transportation-Air Market. Many of the discount airline firm’s fundamentals appear strong and its top and bottom lines are projected to climb significantly both this year and next.  

The Basics

Allegiant refers to itself as an “integrated travel company with an airline at its heart.” The Las Vegas-based firm offers customers low-cost flights from smaller cities throughout the U.S., as well as to vacation hubs such as Phoenix, Orlando, and of course, Las Vegas. Allegiant also sells travel package bundles that include flights, hotels, rental cars, and tickets to local entertainment events.

Investors should also note that the firm doesn’t even fly every day, opting instead for flights on “only the days when most people want to fly.” This helps the company that was founded in the late 1990s save money. In fact, Allegiant’s 22% airline operating margin led the industry in the first quarter and that figure popped to 24% in Q2.

Allegiant currently runs more than 450 routes across the country and provides nonstop, scheduled service from over 110 U.S. cities. The firm also boasts that its base fares cost less than half than average domestic roundtrip ticket. ALGT doesn’t really compete against giants such as United (UAL), American (AAL), Delta (DAL), Southwest (LUV), or even JetBlue Airways (JBLU). Instead, it likely finds itself up against the likes of Spirit (SAVE) and other discount airlines. Nonetheless, Allegiant looks poised to expand its business, which includes bringing its leisure model to Mexico and the Caribbean in the “coming years.”

Price Movement

 

 

 

 

Moving on, ALGT stock has crushed its industry over the last decade. The last three years have, however, been far more turbulent for Allegiant and the Transportation-Air Market—both up just around 4%. With this in mind, shares of the discount airline firm have had a comeback over the last year. ALGT stock is up 5% over the last 12 months, against its industry’s 14% decline.

Better yet, Allegiant has soared over 41% in 2019. Despite its strong overall performance, shares of ALGT currently rest roughly 10% below their 52-week highs, which could set up a solid buying opportunity for those high on Allegiant.

Other Fundamentals

Allegiant currently utilizes two aircraft: the 156-seat Airbus (EADSY) A319 and the roughly 180-sear Airbus A320. The simple fact that Allegiant hasn’t been exposed to Boeing’s (BA) 737 Max groundings is a good thing. Allegiant executives also praised Airbus’ fuel efficiencies. With this in mind, lower global oil prices could help the company during the upcoming holiday travel period.

Furthermore, Allegiant’s total passengers surged 12.6% last quarter, with revenue passenger miles up 11.5% and available seat miles up 13.4%. On top of that, the overall airline industry appears strong right now, which might help boost Allegiant. The Transportation – Airline industry currently ranks in the top 12% of our 256 Zacks industries.

Investors should note that ALGT holds “B” grades for both Value and Momentum in our Style Scores system. The company is also set to pay a dividend of $0.70 per share on September 27 to shareholders of record as of September 20. Allegiant’s annualized payout currently comes out to $2.80 a share, with a 1.97% yield that looks very strong as the yields on the 10-year U.S. Treasury sit at 1.46%.

 

 

 

 

Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimates call for the firm’s Q3 2019 revenue to jump 9.23% to reach $429.39 million. This would fall short of last quarter’s 12.6% operating revenue expansion. Still, the firm’s Q4 revenue is projected to grow by over 11% to help lift full-year fiscal 2019 revenue by 9.7% to $1.83 billion. Then, peeking ahead to 2020, Allegiant’s revenue is projected to climb 11.3% above our current-year estimate to reach $2.04 billion.

At the bottom end of the income statement, ALGT’s adjusted third-quarter earnings are projected to skyrocket from $0.94 per share in the year-ago period to reach $2.23 a share. The firm’s Q4 earnings are expected to climb 40%, with fiscal 2019’s EPS figure then projected pop 36.5%. And this insane bottom-line growth is projected to be followed up with another 12.4% expansion in 2020.

 

 

 

 

Bottom Line

Allegiant has seen its earnings estimate revision activity trend more heavily in the right direction recently, especially for fiscal 2019 and 2020. This positivity helps ALGT earn a Zacks Rank #1 (Strong Buy) and look like a stock that investors might want to consider picking up at the moment.

Lastly, the company announced in early August that it landed the naming rights for “the under-construction future home of the Raiders and UNLV football,” which could help provide more national exposure.

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