Pent-up travel demand has garnered substantial gains for the airline industry in the post-pandemic era. However, analysts fear a downturn in the airline sector amid sky-high prices, consecutive rate hikes, and rising recession odds.
Analysts at Jefferies wrote, "We struggle to get positive on a pricing story when the Fed is actively targeting airline fares as a component of inflation."
Moreover, according to the U.S. Travel Association, international visitors to the United States remain 34% below pre-pandemic levels. The International Air Transport Association (IATA) has predicted that global air travel will not recover fully in 2024.
Given the backdrop, investors could avoid buying fundamentally weak airline stocks Frontier Group Holdings, Inc. (ULCC) and Spirit Airlines, Inc. (SAVE).
Frontier Group Holdings, Inc. (ULCC)
ULCC is a low-fare airline company that provides air transportation for passengers. The company operates an airline that serves approximately 120 airports throughout the United States and international destinations in the Americas.
In terms of forward Price/Book, ULCC is currently trading at 4.47x, 82.8% higher than the industry average of 2.45x. The stock's forward Price/Cash Flow multiple of 317.25 is significantly higher than the industry average of 12.16.
ULCC's negative EBIT Margin of 7.33% is lower than the industry average of 9.73%, and its negative net income margin of 4.29% is lower than the industry average of 6.80%.
ULCC's current liabilities came in at $1.45 billion for the period ended September 30, 2022, compared to $1.33 billion for the period ended December 31, 2021. Its total liabilities came in at $3.78 billion, compared to $3.71 billion for the same prior period a year ago. Also, its current assets came in at $892 million, compared to $1.03 billion for the year-ago period.
Over the past year, the stock has lost 22% to close the last trading session at $12.69.
ULCC's poor fundamentals are reflected in its POWR Ratings. The stock's overall D rating indicates a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ULCC has a D grade for Value and Quality. In the D-rated Airlines industry, it is ranked #25 out of 31 stocks. Click here for ULCC's additional POWR Ratings for Growth, Stability, Sentiment, and Momentum.
Spirit Airlines, Inc. (SAVE)
SAVE provides airline services. It covers approximately 85+ destinations across 16 countries in the United States, Latin America, and the Caribbean. It primarily focuses on value-conscious travelers.
In terms of forward EV/EBITDA, SAVE is trading at 15.30x, 49.1% higher than the industry average of 10.26x.
SAVE's negative EBIT Margin of 5.35% is lower than the industry average of 9.73%, and its negative net income margin of 7.95% is lower than the industry average of 6.80%.
In October, SAVE reported that its stockholders approved the merger agreement with JetBlue Airways Corporation (JBLU). It was reported that more than 50% of the outstanding shares of SAVE common stock voted in favor of the transaction.
SAVE's operating loss came in at $36.39 million for the period ended September 30, 2022, compared to an operating profit of $14 million in the year-ago period. The company's net loss came in at $36.38 million, compared to a net profit of $14.78 million in the previous period. Also, its loss per share came in at $0.33, compared to an EPS of $0.14 in the prior-year period.
Over the past year, the stock has lost 12.6% to close its last trading session at $20.93.
SAVE's overall D rating equates to a Sell in our POWR Ratings system. It has a D grade for Stability and Quality. It is ranked #28 in the same industry. Click here for the additional POWR Ratings for Value, Growth, Momentum, and Sentiment for SAVE.
ULCC shares were trading at $12.74 per share on Friday afternoon, up $0.05 (+0.39%). Year-to-date, ULCC has declined -6.12%, versus a -20.50% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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