It has been about a month since the last earnings report for Spirit (SAVE). Shares have added about 7.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Spirit due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Second Quarter Earnings
Spirit Airlines' second-quarter earnings per share (excluding 95 cents from non-recurring items) came in at $1.11, ahead of the Zacks Consensus Estimate of $1.09. The bottom line however, dipped 2.6% year over year on high costs.
The carrier recorded revenues of $851.8 million, in line with the Zacks Consensus Estimate. Meanwhile, the top line improved around 21% year over year owing to 18.9% expansion in flight volume.
Total revenue per available seat miles (a key measure of unit revenues) declined 6.8%. This key metric was hurt by an increase in average stage length and a shift in the timing of Easter.
Total revenue passenger miles (RPMs) registered a rise of 28% in the reported quarter while available seat miles (ASMs) surged 30.5% year over year. Consequently, the load factor (percentage of seats filled by passengers) contracted 160 basis points to 83.7%.
Total operating expenses rose 30.7% to $743.25 million in the quarter under review, primarily due to 39.8% rise in average economic fuel cost per gallon ($2.32). Besides fuel costs, salaries, wages and other benefits soared 44.5%. Unit costs (excluding fuel and special items) decreased 11.3%. Q3 Outlook
The company expects total revenue per available seat mile (TRASM) to increase in the range of 2-3% during the third quarter. The view includes a 170-basis point negativity from a 3.4% increase in average stage length as well as other adversities. Additionally, the airline anticipates a capacity expansion of 24.5% in the same period. Meanwhile, unit costs (excluding fuel and special items) are estimated to decline 3-4%. Economic fuel cost is projected to be $2.33 per gallon. Moreover, an effective tax rate of 24% is forecast in the time frame. 2018 Outlook
For the full year, Spirit Airlines expects unit costs (excluding fuel and special items) to decrease in the 3.5-4% band year over year. Capacity in the year is forecast to climb approximately 22.7% while effective tax rate is projected to be 24%. Capital expenditures are estimated to be $1.02 billion in the period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 16.62% due to these changes.
At this time, Spirit has a subpar Growth Score of D, however its momentum is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Spirit has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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