5 Reasons Why Goldman Turns Bullish On Spirit Airlines

Low-cost airliner Spirit Airlines Incorporated (NYSE: SAVE) reported Tuesday with mixed fourth-quarter results and cautious first-quarter guidance. Despite a sell-off Wednesday, Goldman Sachs turned bullish on the stock after Spirit's conference call. 

The Analyst

Goldman Sachs' Catherine O'Brien upgraded Spirit Airlines from Neutral to Buy with a price target lifted from $78 to $85.

The Thesis

O'Brien's shared five takeaways from Spirit Airlines' post-earnings conference call that she said support a bullish stance on the stock.

• Revenue per available seat mile (RASM) rose 11.4 percent in the reported quarter due to re-orientation efforts, shifting away from less accretive off-peak flying times on Tuesdays and Wednesdays and ticket/non-ticket yield initiatives. Management also noted that tighter inventory controls supported pricing trends and said this could continue into the March-ending quarter.
• Spirit discussed its March-ending quarter RASM guidance growth of 5 percent from last year but didn't detail its outlook for the June-ending quarter. Yet management did talk about multiple drivers of revenue strength for the quarter, including a favorable Easter shift, and new international capacity.
• Full-year capacity growth guidance was lifted from around 14 percent to around 15 percent, suggesting the airline is more confident in its ability to control its operational performance, along with a "more refined view" on its aircraft delivery schedule and Wi-Fi installations.
• This year's cost per available seat meal (excluding fuel) guidance was revised from a range of flat-to-1-percent to a 1-2-percent increase. Spirit highlighted its decision to finance nine of its 16 aircraft deliveries this year through a sale or leaseback instead of putting them on the balance sheet.
• The company continues to explore its fleet opportunities beyond the current order book, including looking outside of the Airbus A320 line.

Price Action

Shares of Spirit Airlines were trading higher by 2.41 percent at the time of publication Thursday. 

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Photo by Dustin Blitchok.