Spirit Airlines Lifts Q4 Guidance: The Sell-Side Reacts

Spirit Airlines Incorporated SAVE said Monday that it expects its total revenue per available seat mile, or RASM, to rise around 11 percent in the fourth quarter —nearly double its initial guidance of 6 percent.

Raymond James, Bank of America Merrill Lynch and JPMorgan issued notes in reaction to the  guidance update, which helped boost Spirit shares higher.

The Analysts

Raymond James' Savanthi Syth maintains a Strong Buy rating on Spirit Airlines.

Bank of America's Andrew Didora maintains at Buy, price target lifted from $57 to $63.

JPMorgan's Jamie Baker maintains at Neutral, unchanged $59 price target.

Raymond James: Favorable Trends Holding

Spirit Airlines lifted its fourth-quarter RASM guidance, which implies favorable yield trends are "holding so far" despite a recent pullback in fuel prices, Syth said in a note.

The improved outlook can also be attributed to the following, the analyst said:

• Better performance from its dynamic pricing initiatives.
• Improved loads from optimizing its schedule.
• A better overall environment at a peak period.

The airliner narrowed its Q4 CASM-Ex — excluding fuel and special items — from a range of 5-6 percent to 5-5.5 percent and lowered its fuel cost per gallon from $2.46 to $2.27, the analyst said.

Spirit's 2018 EPS is now tracking around 20 percent better than previously modeled and around 14 percent ahead of the consensus estimate, according to Raymond James. 

Related Link: JPMorgan Updates The Airline Sector: 3 Downgrades, 1 Upgrade

BofA: Big Beat

The budget airline's guidance update represents a "big beat" versus current estimates, which warrants meaningful upward revisions to Q4 and full year 2018 and 2019 estimates, Didora said in a note.

The Q4 RASM update more than doubles the company's quarterly EPS estimate from 64 cents to $1.35, with 39 cents of the upside attributed to the RASM update; 29 cents attributed to fuel prices; and the remaining 3 cents coming from CASM-ex tracking to the lower end of management's original 5-6-percent guidance range, the analyst said. 

BofA lifted its full year 2018 EPS estimate by 19 percent to $4.37, while the 2019 EPS estimate moved higher from $4.49 to $5.05 — with upside potential if oil prices remain at their present levels or continue moving lower, Didora said. 

JPMorgan: Unlike Anything Seen Before

Spirit Airlines' "material" upward guidance revision arrived handily ahead of all published Street forecasts, Baker said in a note. 

An estimated 75 percent of the upward revision is due to a RASM surge "frankly unlike anything we've ever seen," the analyst said. 

The strong guidance implies that recent initiatives like charging for seat selection, bags and bundled packages are notably outperforming even management's own expectations, according to JPMorgan. 

Yet the stock's strong performance heading into Monday's guidance update implies there are other airliners that offer a superior risk-reward profile such as JetBlue Airways Corporation JBLU.

The Price Action

Spirit shares were trading higher by nearly 17 percent at $59.46 at the time of publication Tuesday. 

Related Link: Goldman Sachs Clears Airline Stocks For Takeoff

Photo by Adam Moreira/Wikimedia.