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Here's Why You Should Dump Allegiant From Your Portfolio

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Allegiant Travel Company (ALGT - Free Report) has been plagued with numerous headwinds, of late. In fact, factors like capacity-related woes, safety-related issues and escalating fuel costs have resulted in the Allegiant stock shedding 10.2% of its value so far this year.

YTD Price Performance

 

 

Reasons for the Lackluster Performance

High fuel and labor costs have been limiting the carrier’s bottom-line growth for quite some time now and the second quarter of 2018 is likely to be no different. In May, fuel costs at Allegiant were approximately $2.44 per gallon, higher than the April reading of $2.28 per gallon. With oil prices on an uptrend, Allegiant might revise its current-year fuel price guidance of $2.20 per gallon upward in the near future. High labor costs may also weigh on the company’s bottom-line performance.

We note that Allegiant is not the sole airline company to suffer from high fuel costs. Other carriers like Southwest Airlines Co. (LUV - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and American Airlines Group Inc. (AAL - Free Report) are also being hurt by the rise in one of the largest input costs for any airline.

Additionally, capacity-related woes have been hurting Allegiant for quite some time and the company’s May traffic report was no exception. In May, system capacity, calculated in available seat miles (ASMs), expanded 10.7% to 1.23 billion. Notably, capacity expansion was more in May compared with 9% in April, giving rise to capacity-overexpansion related fears.

Meanwhile, Allegiant is still suffering from CBS News' report, 60 Minutes, alleging that it was facing a number of safety-related issues. The damaging television program was aired on Apr 15. The allegations are being investigated.

Furthermore, Allegiant’s high debt levels are concerning. The fact that it is a highly leveraged company is quite evident from the ratio of its long-term debt-to-equity (expressed as a percentage), which is currently in excess of 100. This compares unfavorably to the figure of 92.6% for its industry.

Unfavorable Readings

The Zacks Consensus Estimate for second-quarter and 2018 earnings moved south 1.8% and 2%, respectively, in the last 60 days. This reflects investor’s pessimism surrounding the stock. Moreover, the company exhibits a Momentum Score of D, which highlights its short-term unattractiveness. 

Undoubtedly, the above negatives substantiate the company’s Zacks Rank #4 (Sell).

However, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our View

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Allegiant seems to one such stock, which has witnessed downward earnings estimate revisions and has an unfavorable Zacks Rank.

Therefore, if you are still holding on to shares of Allegiant in your portfolio, we believe that it is time you dump them as chances of favorable returns in the near term appear bleak.

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