Why This Spirit Airlines Analyst Is Turning Bullish

A merger of Spirit Airlines Incorporated (NYSE: SAVE) is “a high probability outcome,” and a merger with JetBlue Airways Corporation (NASDAQ: JBLU) is more likely than with Frontier (NASDAQ: ULCC), according to a JPMorgan analyst. 

The Spirit Airlines Analyst: Jamie Baker upgraded the rating for Spirit Airlines from Neutral to Overweight while raising the price target from $24 to $30.

The Spirit Airlines Takeaways: The airline's shares are trading in-line with the Frontier deal, Baker said in the upgrade note.

“In our mind, this largely insulates Spirit shares from any material downside owing to fundamentals, at least in the near term,” the analyst said.

“In the absence of material forecasted downside, we believe Spirit shares should be held at least until the revised June 30 shareholder vote," he said.

Baker assigned an 80% probability of a merger with JetBlue, with the current offer at $31.50 per share.

“Additionally, we recommend an options trade, specifically a July 15th $20/$25 strike risk reversal (sell a put to buy a call indicatively paying $0.07 [0.32% premium vs $22.29 ref price] for just over one month and into the recently delayed shareholder vote on June 30th).”  

SAVE Price Action: Shares of Spirit Airlines were trading 2.18% higher at $22.78 midday Friday. 

Photo courtesy of Spirit Airlines.