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Surprise!

I was working on a screener for an upcoming article about tapering. So what does Spirit Airlines (SAVE) have in common with a technology company like Himax (HIMX)? last covered by me here.

Spirit Airlines. The company's all-Airbus fleet, as of December 31, 2012, operated approximately 200 daily flights to over 50 destinations in the United States, Caribbean and Latin America. As of December 31, 2012, its route network included 110 markets served by 52 airports throughout North America, Central America, South America and the Caribbean. As of December 31, 2012, Ft. Lauderdale/Hollywood International Airport remained its main airport served, with over 20% of its capacity operating to or from FLL. During the year ended December 31, 2012, it operated international service to Aruba, the Bahamas, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru and St. Maarten, as well as Puerto Rico and the United States Virgin Islands. The Company also sells mileage credits to companies participating in the FREE SPIRIT program.

To start with, both Himax and Spirit have expanding margins. Central to my thesis about tapering is a lower oil price. A stronger dollar will put pressure on crude as illustrated in this chart from the IMF.

(Morre information available from BP 2030 persentation to the IMF)

If you are an airline, lower oil means better margins.

SAVE EBITDA Margin TTM Chart

SAVE EBITDA Margin TTM data by YCharts

In 2011 we broke back above $100 per barrel, this put pressure on Spirits margin. Even with oil maintaining these levels Spirit has been able to improve margins YOY. Lower oil prices should cause margins to expand faster.

Like Himax, Spirit has been able to increase revenue each year. Revenue growth has slowed but should increase with the addition of 20 extra planes. The new planes were covered in an article by SA contributor Fusion Research a month ago. New routes were announced yesterday that will also help to drive revenue.

"MIRAMAR, Fla., Aug. 19, 2013 (GLOBE NEWSWIRE) -- Spirit Airlines (Nasdaq:SAVE) today announced that it is starting seasonal service between Minneapolis-St. Paul International Airport (MSP) and four new cities, including Los Angeles (LAX), Orlando (MCO), Phoenix Sky Harbor (PHX) and Tampa (TPA). The nonstop daily flights start November 7, 2013."

(Full story available here.)

I have flown with Spirit and speaking as a customer;

  1. The website and ticketing were difficult to navigate.
  2. We flew from Portland to San Diego and then Las Vegas. Not the most direct route from Portland to Las Vegas.

On the other hand;

  1. It was cheap.
  2. The staff were helpful at check in and on the plane.
  3. Club discount on the baggage saved even more money.
  4. Refreshments were not too expensive.
  5. No delays.

I would fly with them again. The model seems to be similar to RyanAir (RYAAY) a carrier I have used for years.

Spirit also has no debt, yet another thing they have in common with Himax. Both shares have had a good run this year too.

(click to enlarge)

Even more in common...

Jun. 13, 2013 Himax Technologies Announces Pricing of 22,086,742 ADSs by Selling Shareholder Innolux Corporation

July 29, 2013 Spirit Airlines Announces Sale of Common Stock by Indigo

In both cases, insider selling has put downward pressure on share prices. In addition to the sale by Indigo, board members associated with Indigo have also been selling.

.

DateName-PositionTransactionSharesPrice Range ($)Shares HeldMkt Value
8/15/13Lefebvre Tony
Chief Operating Officer
Sale11,01230.57 - 30.96--$338.6 K
Lefebvre Tony
Chief Operating Officer
Exercise of Options5,00012.00 - 12.00--$60.0 K
8/2/13Indigo Florida L P
Beneficial Owner of more ...
Sale12,070,92733.15 - 33.157,128$400.2 M
7/29/13Biffle Barry
Officer
Sale29,81235.44 - 35.44177$1.1 M
Meabs Bay L P
Unknown
Planned Sale29,812-- - ----$1.1 M
7/16/13Biffle Barry
Officer
Exercise of Options2,5007.80 - 7.8061,789$19.5 K
7/1/13Baldanza Basil Ben
Officer
Planned Sale5,000-- - ----$164.4 K
Baldanza Basil Ben
Chief Executive Officer
Sale5,00031.80 - 31.8095,393$159.0 K
6/7/13Canfield Thomas C
General Counsel
Sale26530.84 - 30.8428,809$8.2 K
6/3/13Baldanza Basil Ben
Chief Executive Officer
Sale48,00030.01 - 30.01100,236$1.4 M
Baldanza Basil Ben
Officer
Planned Sale48,000-- - ----$1.4 M
5/8/13Canfield Thomas C
General Counsel
Sale5,00029.75 - 29.7529,074$148.8 K
Lefebvre Tony
Chief Operating Officer
Sale2,50029.53 - 29.5315,201$73.8 K
5/7/13Canfield Thomas C
General Counsel
Sale10,00029.04 - 29.0434,074$290.4 K
5/3/13Christie Edward M I...
Chief Financial Officer
Sale8,00027.79 - 27.7946,152$222.3 K
Lefebvre Tony
Chief Operating Officer
Sale7,50027.67 - 27.6717,701$207.5 K
Christie Edward M I...
Senior Vice President
Planned Sale8,000-- - ----$219.1 K
Lefebvre Tony
Senior Vice President
Planned Sale7,500-- - ----$207.5 K
5/1/13Baldanza Basil Ben
Officer and Director
Planned Sale48,000-- - ----$1.3 M
Biffle Barry
Officer
Sale10,00026.97 - 27.5561,638$272.6 K

Since then some of these board members have resigned and been replaced.

MIRAMAR, Fla., Aug. 7, 2013 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (Nasdaq:SAVE) today announced that its Board of Directors has elected H. McIntyre Gardner as Chairman.

Conclusion:

I feel that the Indigo sale has created a buying opportunity. Spirit appears to be in good shape financially and is continuing to grow.

Based on a FP/E of 15, $40 becomes a reasonable price target for 2014. Although a P/E 15 is higher than the industry standard, some weighting has been given to Spirit's growth potential. Lower fuel costs could send Spirit as high as $50. Although today's price offers a significant return, I would prefer to buy on a pull back caused by general weakness in the markets.

I will look for $26 -$27 before starting any position.

Source: S.O.S. - SAVE Our Souls, Spirit Airlines

Additional disclosure: I have no position in (SAVE), but may initiate a position in Spirit Airlines (SAVE) over the next 72 hours.