Allegiant Travel’s ALGT efforts to expand its fleet amid revenue woes are commendable. However, the company’s financial stability is challenged by escalated operating expenses and weak liquidity.
Factors Favoring ALGT
Allegiant Travel’s efforts to expand and modernize its fleet are commendable. In the second quarter of 2024, ALGT was recognized as the best low-cost carrier in North America, highlighting its strong market position. Additionally, the company’s announcement of eight new routes in the third quarter of 2024 will increase its network to 558 routes, strengthening its service reach and growth prospects.
Allegiant's Allways Rewards Visa card program continues to demonstrate impressive growth, particularly in a challenging environment. The 28% increase in high-margin third-party product revenues during both the second quarter and the first half of the year highlights the success of its strategy.
As fuel expenses represent a key input cost for any transportation player, a decline in fuel costs bodes well for Allegiant’s bottom line. In the first half of 2024, the average fuel cost per gallon (scheduled) decreased 3.9% to $2.92. For the third quarter of 2024, management expects the fuel cost per gallon to be $2.80.
Key Risks
Allegiant’s financial stability is challenged by its increasing operating expenses and weak liquidity. In the second quarter of 2024, operating expenses surged by 14.7% year over year to $631.4 million. This increase in operating expenses was primarily driven by a rise in labor costs.
In the first quarter of 2024,labor costs, comprising salaries and benefits (accounting for 33.3% of the total operating expenses), rose by 18.5% year over year.
Allegiant exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.74. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations. Reduced pricing power is another concern.
Shares of ALGT have declined 54.4% over the past year compared to its industry’s growth of 20.8% in the same period.
Image Source: Zacks Investment Research
Zacks Rank
ALGT currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide CHRW and Westinghouse Air Brake Technologies WAB.
C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 25.2% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 8.7% in the past year.
WAB holds a Zacks Rank #2 (Buy) at present and has an expected earnings growth rate of 26% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 11.8%. Shares of WAB have climbed 45.4% in the past year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
