Please note this is only an opinion and not financial advice. Direct stock investing is subject to business and market risks. Therefore, it’s highly recommended to do proper risk management and your own due diligence before investing.
Value Stock Analysis as on 03 Feb 2024
Top Value Stock
NYSE: Spirit Airlines, Inc. (SAVE)
- Spirit Airlines (NYSE: SAVE) is dedicated to offering unparalleled value in air travel. We excel in delivering personalized travel choices, beginning with our unbundled fare model.
- Our guests have the flexibility to pay solely for the selections they make, such as bags, seat assignments, refreshments, and Wi-Fi, which we refer to as À La Smarte. Additionally, our Fit Fleet stands out as one of the youngest and most fuel-efficient fleets in the United States.
- It serves 92 destinations in 16 countries in the United States, Latin America, and the Caribbean.
- A judge’s decision halts JetBlue’s acquisition of Spirit Airlines, leading to a stock decline of more than 50%.
- JetBlue presented a compelling argument for the merger approval, proposing remedies to ensure ongoing competition in the market.
- At $6, the stock appears attractive, especially considering the anticipated improvement in the domestic air travel market for 2024.
- Spirit Airlines, Inc. was founded in 1964 and is headquartered in Miramar, Florida.
- The company was formerly known as Clippert Trucking Company and changed its name to Spirit Airlines, Inc. in 1992.
Spirit Airlines Share Holding Pattern:
| Holder | Shares | Date Reported | % Out | Value |
|---|---|---|---|---|
| Vanguard Group Inc | 10,350,193 | Sep 29, 2023 | 9.48% | 65,206,217 |
| Blackrock Inc. | 7,872,584 | Sep 29, 2023 | 7.21% | 49,597,280 |
| FMR, LLC | 5,296,283 | Sep 29, 2023 | 4.85% | 33,366,583 |
| Cyrus Capital Partners, L.p. | 3,125,870 | Sep 29, 2023 | 2.86% | 19,692,981 |
| Dimensional Fund Advisors LP | 2,779,865 | Sep 29, 2023 | 2.55% | 17,513,150 |
| Nomura Holdings Inc. | 2,777,997 | Sep 29, 2023 | 2.54% | 17,501,381 |
| State Street Corporation | 2,498,317 | Sep 29, 2023 | 2.29% | 15,739,397 |
| Geode Capital Management, LLC | 2,228,709 | Sep 29, 2023 | 2.04% | 14,040,867 |
| Alpine Associates Management Inc. | 1,904,500 | Sep 29, 2023 | 1.74% | 11,998,350 |
| State Of Wisconsin Investment Board | 1,750,080 | Sep 29, 2023 | 1.60% | 11,025,504 |
What we think are pros of business:
- Despite recent reports suggesting Chapter 11 bankruptcy for Spirit Airlines, I do not anticipate this outcome based on my cash flow analysis.
- Following recent setbacks, such as the blocked merger between Spirit and JetBlue, investors in the airline industry are reconsidering their investments.
- Identifying future liquidity sources can support Spirit Airlines’ debt renegotiation and aircraft deliveries.
- Strong market position: Well-known brand, large customer base from different regions or countries.
- Refinancing its debt and maintaining a comfortable liquidity position is not an impossible task for Spirit, given its cash flow situation ensures the future strength of the business survival.
- Strategic Growth Potential: Despite setbacks like the blocked merger with JetBlue, Spirit shows resilience and strategic foresight, indicating potential for growth and adaptation.
What we think the risks are:
- Investors purchasing Spirit shares should be aware that bankruptcy could result in shareholders losing their investment, with bondholders becoming the new owners of the company.
- The company’s higher interest rates on debt lead to higher discount rates and lower valuations.
- The event of unforeseen disruptions or market downturns, the company could face difficulties in meeting its debt obligations and sustaining operations.
- Spirit has faced operational problems in recent years, compounded by a looming $1.11 billion 8% note maturity, which could necessitate major financial restructuring, potentially leading to bankruptcy.
Fundamentals:
- Market Cap: 687.75 Million
- Revenue: 5.43 Billion
- P/E: -1.30
- EPS: -4.9
- Net Profit margin = 14.71%
- Dividend: 1.20 (19.05%)
Technical for a long-term perspective:
– Currently trading at its all time low levels and where buyers are interested to accumulate these types of stocks.
– Volumes are continuously increasing indicating the upcoming bug movement.
– Price is consolidating and making a descending triangle pattern which may lead to a big breakout in the near future.
– You have to allocate a very little percentage of your portfolio because this will be a very volatile trade with high risk reward.
– RSI is trading in the oversold zone and it will try to bounce soon towards higher levels of 50-60.
Entry = 7
Stop Loss = 3.89
Target = 14.50 / 25 / 34
Our Final Thought:
Anticipated returns to previous EPS targets and the potential for merger approval on appeal could provide significant upside, making Spirit Airlines an intriguing investment prospect despite the existing challenges. I am optimistic that Spirit will maintain its liquidity position, successfully refinance its upcoming FY’25 debt maturity of $1.1 billion, and eventually recover its profitability. Stock is trading near book value and this is the only time I would like to suggest to accumulate this stock.
Consequently, my conclusion that Spirit could be valued between $2.4 billion and $3.6 billion on a standalone basis remains intact, considering the projected cash flow forecast. On technical basis this stock has great potential for the huge upside, if it doesn’t workout for huge upside it may try to give a small bounce a small bounce after such a big fall which would be of minimum 20%-25% so that you can also plan for that moves.
Allocate only a small percentage of your portfolio to this trade due to its high volatility and associated risk-reward profile.
Please note this is only an opinion and not financial advice. Direct stock investing is subject to business and market risks. Therefore, it’s highly recommended to do proper risk management and your own due diligence before investing.
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