The airlines are flying high and so are their stocks. Spirit Airlines, Inc. (SAVE - Analyst Report) recently posted record third quarter results as revenue jumped double digits over a year ago. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in both 2013 and 2014.
Spirit Airlines operates a low-cost airlines based on ultra-low base fares which allows customers to buy the extras they value. The company has a $9 Fare Club program that costs $59.95 per year but gives customers access to special low fares and deals on baggage fees.
Spirit operates about 250 flights to 50 destinations in the U.S., Caribbean and Latin America. It is one of the few airlines offering service from the United States to the expanding markets of Panama and Colombia.
Big Beat in the Third Quarter
On Oct 30, Spirit reported its third quarter results and blew by the Zacks Consensus by $0.10. Earnings were $0.79 compared to the Zacks Consensus of $0.69. It was the fourth earnings beat in a row.
Revenue jumped 33.4% to $456.6 million. Total revenue per available seat mile ("RASM") was 12.55 cents, up 8.9% compared to the year ago quarter. The gain was due to higher load factors and higher average passenger yields.
Adjusted pre-tax margin rose to 20.3%, the highest quarterly adjusted pre-tax margin in the company's history.
Spirit is expected to have strong double digit earnings growth of 57% in 2013 and another 20.2% in 2014.
In the third quarter, Spirit added one new A320 aircraft, bringing its total fleet to 51 aircraft. It recently started several new routes including Dallas/Fort Worth to Phoenix Sky Harbor, Phoenix Sky Harbor to Chicago and Minneapolis/St. Paul to Tampa.
Shares At 2-Year Highs
After another solid earnings beat, shares jumped to new highs.
Even though shares are hitting new highs, the stock isn't super expensive. It trades with a forward P/E of 18.9 but given its strong earnings growth it has a PEG ratio of just 0.7. A PEG under 1.0 usually indicates that a company is undervalued.
For investors looking for a way to play the low-cost airlines, Spirit is one to keep on the short list.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.