Spirit Airlines (NASDAQ:SAVE) has been one of my favorite stocks over the last 6 months. Anyone who says it is too hard to make money in airlines obviously has not been following our progress here. In the chart below, we can see how well the stock has performed since my first article about them in August.
Spirit has consistently beaten estimates this year. After my second article about them, analysts revised estimates upward for Q3. I had suggested that analysts were not taking lower fuel costs into consideration, which have the effect of expanding margins. When Spirit reported Q3 results, they beat even the upwardly revised estimates. The high estimate was EPS of $0.75 and they delivered $0.79.
So what is new?
Absolutely nothing, the story is exactly the same. Oil prices have continues to decline and passenger numbers continue to increase. Once again the analysts' estimates are too low only one month before the next earnings release.
|Earnings Est||Current Qtr.|
|No. of Analysts||13.00||8.00||13.00||13.00|
|Year Ago EPS||0.48||0.45||1.43||2.31|
I am expecting Spirit to do much better than this so let us look at why.
Last week Spirit filed an 8K outlining passenger numbers for December and full year 2013.
Spirit Airlines Reports December 2013 Traffic
MIRAMAR, Fla. (January 8, 2014) - Spirit Airlines today reported its preliminary traffic results for December and full-year
Traffic (revenue passenger miles) in December 2013 increased 24.8 percent versus December 2012 on a capacity (available seat miles) increase
of 20.3 percent. Load factor for December 2013 was 87.9 percent, an increase of 3.2 points as compared to December 2012. Spirit's preliminary
completion factor for December 2013 was 98.9 percent.
The following table summarizes Spirit's traffic results for the month and year ended December 31, 2013 and 2012.
December 2013 December 2012 Change Revenue Passenger Miles 1,118,119 895,710 24.8% Available Seat Miles 1,272,607 1,057,478 20.3% Load Factor 87.9% 84.7% 3.2% Passenger Flight Segments 1,111,208 923,862 20.3% Average Stage Length(miles) 1,008 951 6.0% Total Departures 7,883 6,963 13.2%
YTD 2013 YTD 2012 Change Revenue Passenger Miles 12,001,088 9,663,721 24.2% Available Seat Miles 13,861,393 11,344,731 22.2% Load Factor 86.6% 85.2% 1.4% Passenger Flight Segments 12,413,812 10,422,548 19.1% Average Stage Length(miles) 958 909 5.4% Total Departures 90,284 78,582 14.9%
The Company will provide updated guidance for the fourth quarter 2013 in its Investor Update to be filed later this month.
The last line is very important; I think this is what the analysts are waiting for. No one wants to stick their neck out ahead of that update just to be proved wrong. The current high estimate for Q4 is $0.50 compared to an actual of $0.48 for the same quarter last year.
If we consider only the 13.2% increase for December departures, last year's actual would become $0.54. This would be a conservative estimate and does not account for lower fuel costs, fleet expansion or the higher load factor.
Ok , so here is what I expect.
Q42013 EPS $0.63 on revenues of 425M
FY2013 EPS $2.46 and revenues 1.66 Billion
Based on current P/E 22 we would get a price of around $55. We were close to $50 on Friday and I anticipate that we will overshoot $55 on any strong guidance. In my last article I had outlined $50 - $55 as the range Spirit should trade in this year. I had also stated that we could see $60 which is still 20% upside from here. With all that said, why would I be asking if it was time to bailout?
I remain optimistic about earnings for FY2013 and Q1 2014. I also believe we will see further price appreciation in the near term. I do not expect the stock to jump significantly after earnings. Due to revised guidance most of the upside will already be built in. The investor release later this month will be the main catalyst for the stock and I anticipate a price of $55-$60.
Unless guidance is significantly better than my estimates I will be selling into this range. There is an outside chance that Q4 earnings are much better than my estimates. I still believe that Spirit is a good investment for the longer term but think that the stock may become a little stretched from a valuation point of view. The current P/E of 22 is the highest in the industry and has been viable due to growth. Although Spirit is continuing to grow I expect it to do so at a slower rate going forward. Management has done an outstanding job over the last few years and I expect them to continue. I will repeat that I still think Spirit is a good Long Term investment but the law of large numbers will start to slow growth.
I still see Spirit finishing the year in the $50 -$55 range. With continued solid growth $60 becomes sustainable in a year or so even with higher fuel prices. As always I have illustrated what would work for me and remind you that your situation may be different. You should always seek the advice of an investment professional prior to making any decision.
Additional disclosure: This article may contain certain forward-looking statements. I have tried, whenever possible, to identify these forward-looking statements using words such as "anticipates," "believes," "estimates," "expects," "plans," "intends," "potential" and similar expressions. These statements reflect my current beliefs and are based on information currently available. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results, performance or achievements to differ materially from those expressed in or implied by such statements. I undertake no obligation to update or provide advice in the event of any change, addition or alteration to the information contained in this article including such forward-looking statements