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Allegiant Surges 69% Year to Date: Will Growth Continue?

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Allegiant Travel Company (ALGT - Free Report) has had an impressive run on the bourses so far this year, courtesy of solid demand for air travel and impressive shareholder-friendly approach. Evidently, shares of this Las Vegas, NV-based company have surged 68.8% compared with its industry’s 11.5% growth on a year-to-date basis.

Let's delve deep to unearth the reasons behind the company's impressive price performance and find out if there is room for further appreciation:

Allegiant is benefiting from upbeat passenger revenues on account of robust demand for air travel. In fact, in the first nine months of 2019, passenger revenues, which account for the bulk of the company's top line, increased 9.4%. Backed by strong passenger revenues, the company delivered solid bottom-line performance in the two of the three quarters of 2019.

Anticipating demand for air travel to remain strong, Allegiant raised its current-year earnings projection in July. For 2019, the carrier now expects earnings to come in at $14.25-$14.75 per share (earlier guidance: $13.50-$14.25). Further improvement is expected in 2020, with earnings per share projected in the $16.5-$19 band. Notably, the mid-point of the guided range ($17.75) is above the 2020 Zacks Consensus Estimate of $16.58.

These apart, we are impressed by the company’s efforts to reward its shareholders through share buybacks and dividend payments. In 2018, Allegiant rewarded its shareholders with dividend worth $45 million. The company is rewarding its shareholders in 2019 too. Additionally, the company's performance on the punctuality front is impressive. As an evidence, on-time arrival increased four percentage points in 2018 from 2017 levels to 77%. Impressive performances on the punctuality front might enable the carrier to attract more traffic.

Allegiant’s efforts to modernize its fleet are also encouraging. The carrier operates an all-Airbus fleet. Allegiant's fleet-size at the end of 2019 is expected to be 93 (38 A319 and 55 A320), indicating 22.4% improvement from the year-ago reported figure. The fleet size is expected to increase to 105 (38 A319 and 67 A320) by 2020-end. The transition to an all-Airbus fleet, completed in November 2018, increased Allegiant’s fuel efficiency (the measure increased 3.6% year over year to 80 available seat miles per gallon). The company expects 2019 fuel efficiency to be 82.7 available seat miles per gallon.

Notably, the current scenario of low fuel costs is a positive for the company. Evidently, average fuel cost per gallon (scheduled) declined 10% to $2.17 in the September quarter. The company expects fuel cost per gallon of $2.15 in 2019. The measure is expected to decline further to $2.12 per gallon in 2020.

A Broker Favorite

Allegiant’s earnings estimates reflect a healthy uptrend. Evidently, the Zacks Consensus Estimate for current-quarter and year earnings has been revised 9% and 5.8% upward, respectively, over the past 60 days.

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. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Bullish Projections

The Zacks Consensus Estimate for Allegiant’s 2019 earnings is currently pegged at $14.44, indicating 44.4% growth from the year-ago reported figure. The same for 2020 earnings stands at $16.58, mirroring a year-over-year improvement of 14.9%.

In addition, Allegiant has an impressive EPS growth rate (three to five years) of 26.3%, higher than its industry’s 15.1%. The projection with respect to the top line is also impressive. The Zacks Consensus Estimate for Allegiant’s 2019 sales is currently pegged at $1.83 billion, suggesting a 10% improvement from the figure reported a year ago. For 2020, the same is pinned at $2.02 billion, reflecting a year-over-year improvement of 10.4%.

Zacks Rank & Other Key Picks

Allegiant sports a Zacks Rank #1 (Strong Buy). Better-ranked stocks in the Zacks Transportation sector include United Airlines Holdings (UAL - Free Report) , GATX Corporation (GATX - Free Report) and Hawaiian Holdings (HA - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of United Airlines, GATX and Hawaiian Holdings have rallied more than 9%, 16% and 15%, respectively, so far this year.

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