Shares of Allegiant Travel Company (ALGT - Free Report) tumbled to a 52-week low of $119.05 during the trading session on August 17. However, the figure recovered marginally to close the trading session at $119.45, down 3.2% from the closing price of August 16.
Why the Decline?
Last month, this Las Vegas, NV-based company reported disappointing second-quarter 2017 results on the bottom-line front. Its earnings of $2.94 per share missed the Zacks Consensus Estimate by 2 cents, and declined 20.11% from the year-ago figure due to higher costs.
Cost per available seat miles (CASM), excluding fuel, increased 13.2% in the quarter. The new pilot agreement contributed to the increase in the metric. In fact, the company inked many labor deals in the recent past leading to a spike in labor costs. This, in turn, has been hurting the bottom line for quite some time.
In fact, this dismal performance is likely to continue in the third quarter as well. The company expects CASM to grow in the band of 16% to18% in the quarter. The metric is anticipated to increase in the 10% to 12% range for full-year 2017.
Moreover, the guidance for the quarter with respect to total revenue per available seat miles (TRASM: a key measure of unit revenue) is disappointing. Allegiant expects third-quarter 2017 TRASM in the band of - 0.5% and +1.5% compared with the figure in the year-ago quarter. The projection compares unfavorably with 3.1% improvement registered by the metric in the second quarter of 2017.
Apart from the earnings miss, the company’s July traffic report was disappointing with load factor (percentage of seats filled by passengers) declining.
Notably, the key metric at this Zacks Rank #3 (Hold) company fell 80 basis points year over year to 88.8% as capacity expansion outweighed traffic growth for the month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lacklustre Price Performance
Shares of the company have performed disappointingly so far this year. The stock has declined 27.2% against the industry’s gain of 11.2% on a year-to-date basis.
Certainly Not a Broker Favorite
Given the challenges faced by the company, it is natural that the stock is not a favorite of brokers right now. The Zacks Consensus Estimate for the third quarter has moved down 24% to $1.52 in the last month, due to multiple downward revisions. Also, for full-year 2017 the same descended 5.5% to $9.33.
Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. Notably, the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Stocks to Consider
Investors interested in the Airline industry may consider Delta Air Lines, Inc. (DAL - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Ryanair Holdings plc (RYAAY - Free Report) . All the three stocks sport a Zacks Rank #1.
Shares of Delta, SkyWest and Ryanair have gained more than 29%, 23% and 61% in the last year.
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