Spirit Airlines (SAVE) just reported a great quarter and H1 results, but given alerts on higher costs which brought up a downgrade from Deutsche Bank (DB), it took down the entire airline sector cratering almost 25%.
Arguably, Spirit Airlines was indeed flying a little high at $55.00 per share, but the massive drop after reporting solid earnings, where it actually managed to control costs even as fuel expenses jumped, is very encouraging.
At its current price of around $42.00 per share and given where the company is at from a financial standpoint alongside its peer comparisons, SAVE appears to be undervalued and can provide a nice bounce in the next 6 to 12 months. Looking at other companies like Southwest Airlines (LUV), Alaska Air (ALK) and JetBlue (JBLU) puts SAVE's fair value at around $50.00 per share if you treat them all as equals.
Business Model Remains Strong
Spirit Airlines operates flights to over 60 destinations, primarily in North America, but also in Latin America where it rakes in 12% of its revenues.
In the most recent quarter, the company saw an improvement across the board compared to a year ago. Revenue passenger miles increased 15%, revenue per passenger increased 0.3% (due to softness in flight revenues from lower prices but stronger amenities spending), and the company increased its load factor by 1.3 points from 83.7% to 85%.
Even though the airline hired more personnel and saw an uptick in various fees related to its operating environment like leases and airport services, it only increased its H1 operating costs by 8.8% when compared to last year whilst revenues increased just over 20%, a positive sign for further profitability increases in the future.
Balance Sheet Translations
The company's strong performance resulted in free cash flow of $106 million for the first half
