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Here's Why You Should Retain Spirit Airlines (SAVE) Stock Now

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Spirit Airlines (SAVE - Free Report) continues to benefit from an uptick in demand for leisure air travel, further bolstered by commendable fleet upgrade efforts. However, the company's bottom line is overshadowed by rising operating expenses and elevated capital expenditures. 

Factors Favoring SAVE

In the fourth quarter of 2023, Spirit Airlines experienced a 13.4% increase in traffic due to the heightened demand for leisure air travel. Capacity expanded by 14.8% to accommodate this surge. For the first quarter of 2024, available seat miles are forecasted to rise by 1.5% compared to the first quarter of 2023, with overall growth of approximately 2.3% for 2024 compared to the 2023 actuals.

During the fourth quarter of 2023, to expand its network and fleet, Spirit Airlines added four new aircraft (two A320neos and two A321neos) and retired one A319ceo. The fleet totaled 205 planes by the end of 2023. By the end of 2024 and 2025, Spirit aims to have 215 and 234 planes in its fleet, respectively.

Falling fuel costs are boosting the airline's bottom line. In the fourth quarter of 2023, the average fuel cost per gallon dropped by 10.4% to $3.18. For the first quarter of 2024, it is expected to be $2.90.

Key Risks

Spirit Airlines' liquidity is a concern for investors. By the end of the fourth quarter of 2023, the carrier had $865.21 million in cash and cash equivalents compared to long-term debt (and finance leases, less current maturities) of $3.05 billion. This indicates a potential shortfall in cash to meet debt obligations.

Rising operating expenses, including salaries, wages, benefits, landing fees, rents, maintenance, materials and repairs, are negatively impacting SAVE's bottom line. In 2023, total operating expenses increased by 3.4% year over year.

High capital expenditure may hinder the company's ability to generate free cash flow. In 2023, expenditures reached $232.4 million for constructing Spirit's new headquarters in Dania Beach, FL, and purchasing spare parts, including four engines.

Zacks Rank

SAVE currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like GATX Corporations (GATX - Free Report) and SkyWest (SKYW - Free Report) . Each stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%.

The Zacks Consensus Estimate for 2024 earnings has been revised 5.17% upward over the past 90 days. The company has an expected earnings growth rate of 6.5% for 2024. Shares of GATX have rallied 25% in the past year.

SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 233% in the past year.

SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.

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