We recently issued an updated report on Spirit Airlines, Inc. (SAVE - Free Report) . Factors like high debt levels, lower passenger demand and coronavirus-related woes are hurting the company’s financials. However, efficient fleet management and cost-control initiatives are aiding.
Spirit Airlines maintains a young fleet that promotes fuel-efficient operations and is also likely to bring down capital expenditures. In line with its fleet-modernization efforts, the carrier inked a deal with Airbus in December 2019 to buy 100 new Airbus A320neo Family jets. The carrier is also making constant efforts to expand operations.
Moreover, average economic fuel cost per gallon declined 7.5% year over year to $2.11 in 2019. With declining fuel prices, the company now estimates its economic fuel costs to be $1.45 per gallon in 2020 compared with $2.05 expected previously. The significant savings on fuel expenses should support bottom-line growth amid the demand crisis.
However, a significant hit from COVID-19 has crippled air travel demand. Consequently, the carrier slashed capacity by 20% in April and 25% in May. Moreover, Spirit Airlines' labor costs are on the rise (increased 20.2% in 2019). Such high labor costs have the potential to limit bottom-line growth, going forward. Meanwhile, the debt-to-equity ratio (a measure of Spirit Airlines’ financial leverage) is more than 100. A high debt-to-equity ratio implies that the company is funding most of its ventures with borrowings. Moreover, Spirit Airlines' return on equity (ROE) of 16.4% compares unfavorably with the industry's 27.5%. This undercuts its growth potential and implies that the company is less efficient in utilizing its shareholders' funds.
Zacks Rank & Stocks to Consider
Spirit Airlines currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) , Höegh LNG Partners LP (HMLP - Free Report) and Teekay Tankers Ltd. (TNK - Free Report) . GATX and Teekay Tankers sport a Zacks Rank # 1 (Strong Buy), whereas Höegh LNG carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected earnings per share (three to five years) growth rate for GATX, Höegh LNG and Teekay Tankers is pegged at 15%, 8.5% and 3%, respectively.
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