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Why Spirit Airlines' (SAVE) Shares Plunged 22.5% in 2017?

Zacks Equity Research

Spirit Airlines, Inc. SAVE has been plagued by a number of headwinds in 2017. The back-to-back natural calamities and pilot dispute have hurt the carrier’s operations massively. Notably, shares of the company have declined 22.5% in 2017, significantly underperforming the industry’s gain of 14.9% over the same time frame.

 


 

Let’s delve deeper into the negatives:

Weather-related disruptions like hurricanes Harvey and Irma have hampered operations of this low-cost carrier due to which, it had to cancel more than 1,650 flights during the third quarter.

High costs are also hurting Spirit Airlines’ bottom-line growth, causing a slump of 24.2% in its bottom line in the last quarter. Moreover, the same is expected to affect the metric in the to-be-reported fourth quarter.

The carrier has also been struggling with capacity overexpansion woes. Notably, load factor (percentage of seats filled by customers) in the third quarter contracted to 84% from 86% a year ago, thanks to capacity overexpansion.

The company had to incur significant expenses pertaining to passenger re-accommodation and other factors, resulting from the trouble in services following dispute with its pilots. In fact, the carrier's revenues and operating income in the third quarter were badly hit to the tune of $40 million and $39 million, respectively, due to the combined effects of the hurricanes as well as the pilot dispute.

Spirit Airlines' guidance for fourth-quarter total revenue per available seat miles is also disappointing. The metric is expected to fall in the range of 4-6% in the upcoming quarter.

Not a Broker Favorite

Spirit Airlines’ earnings estimates reflect the pessimism surrounding the stock. The stock has seen the Zacks Consensus Estimate for fourth-quarter earnings being revised 2% downward in the last 90 days.

Given the wealth of information at the brokers’ disposal, it is in the best interests of investors to be guided by their advice and the direction that their estimate revisions lend. This is because the direction of estimate revisions serves an important pointer when it comes to deciding on the stock price.

Zacks Rank & Style Score

Taking into account the above-mentioned challenges, we believe that investors should stay away from the stock right now. Sprit Airlines’ Zacks Rank #4 (Sell) also supports our view, indicating that the stock is likely to underperform the broader market over the next one to three months.

Furthermore, the company’s Momentum Score of C also highlights its short-term unattractiveness.

Key Picks

Some better-ranked stocks in the airline space are Deutsche Lufthansa AG DLAKY, Gol Linhas Aereas Inteligentes S.A. GOL and LATAM Airlines Group S.A. LTM. While Deutsche Lufthansa and Gol Linhas sport a Zacks Rank #1, LATAM Airlines carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Deutsche Lufthansa, Gol Linhas and LATAM Airlines have soared more than 100%, 200% and 69%, respectively, in 2017.

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