Commercial airline services provider Spirit Airlines, Inc. (SAVE) covers approximately 85+ destinations across 16 countries in the United States, Latin America, and the Caribbean. It primarily focuses on value-conscious travelers.

On February 7, 2022, SAVE and Frontier Group Holdings, Inc. (ULCC) entered an agreement to combine the two companies to form America’s most ultra-low-fare airline.

SAVE’s shareholder vote on the proposed merger was postponed for the third time to allow the Spirit Board of Directors to continue talks with Frontier and rival bidder JetBlue Airways Corporation (JBLU). The vote has been pushed back until at least July 15.

Despite JBLU’s higher bid amount, SAVE is concerned about potential issues with antitrust regulators if it accepts the JetBlue deal.

On June 29, 2022, JBLU, in a letter, said, “The Spirit Board consistently ignored or refused to engage with JetBlue until faced with certain defeat on the original shareholder meeting date and then, in an attempt to avoid the widespread perception of its poor corporate governance, pretended to engage with JetBlue.”

Meanwhile, ULCC said, “A Spirit acquisition by JetBlue would lead to a dead-end – a fact that no amount of money, bluster, or misdirection will change. And the only value Spirit stockholders would be likely to receive from JetBlue’s proposal is the reverse termination fee, because JetBlue’s proposal lacks any realistic likelihood of obtaining regulatory approval.”

No matter which deal gets approved by the SAVE shareholders, it is expected to face high regulatory scrutiny from the Justice Department after President Biden signed an executive order last year to crack down on anti-competitive practices across various industries.

SAVE’s stock increased 11.7% in price year-to-date but declined 17.5% over the past year to close the last trading session at $24.41. It is currently trading 16.9% below its 52-week high of $29.37, which it hit on July 14, 2021.

Here’s what could influence SAVE’s performance in the upcoming months:

Mixed Financials

SAVE’s total operating revenues increased 109.7% year-over-year to $967.31 million for the first quarter ended March 31, 2022. The company’s total operating expenses increased 109.1% year-over-year to $1.17 billion.

Its operating loss widened 106.2% year-over-year to $211.46 million. The company’s adjusted net loss narrowed 29.4% year-over-year to $173.45 million. However, its adjusted EBITDA loss narrowed 46.9% year-over-year to $108.16 million.

Mixed Analyst Estimates

Analysts expect SAVE’s revenue for fiscal 2022 and 2023 to increase 58% and 15.4% year-over-year to $5.11 billion and $5.90 billion, respectively. Its EPS for fiscal 2022 is expected to remain negative.

Lower-than-industry Profitability

SAVE’s trailing-12-month net income margin is negative compared to the 6.60% industry average. Likewise, its trailing-12-month EBIT margin is negative compared to the 9.58% industry average. Furthermore, the stock’s 0.44% trailing-12-month asset turnover ratio is 44.4% lower than the industry average of 0.79%.

Mixed Valuation

In terms of forward EV/EBITDA, SAVE’s 14.12x is 45% higher than the 9.73x industry average. Its 63.51x trailing-12-month P/Cash Flow is 317.8% higher than the 15.20x industry average.

However, the stock’s 1.35x forward P/B is 42.2% lower than the 2.33x industry average. Furthermore, its 0.52x forward P/S is 55.8% lower than the 1.18x industry average.

POWR Ratings Reflect Bleak Prospects

SAVE has an overall D rating, equating to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SAVE has a D grade for Stability, in sync with its 1.06 beta.

It has a C grade for Value, consistent with its mixed valuation.

SAVE is ranked #27 out of 31 stocks in the F-rated Airlines industry. Click here to access SAVE’s ratings for Growth, Momentum, Sentiment, and Quality.

Bottom Line

SAVE repeatedly deferred the shareholder vote to finalize the deal with ULCC to consider JetBlue’s higher bid. No matter which deal gets the green signal from the SAVE shareholders, it is expected to attract strict regulatory scrutiny.

Given the uncertainty over which offer will be accepted and the company’s lower-than-industry profitability and mixed financials, it could be wise to avoid the stock now.

How Does Spirit Airlines, Inc. (SAVE) Stack Up Against Its Peers?

SAVE has an overall POWR Rating of D, equating to a Sell. Therefore, one might want to consider investing in Air France-KLM SA (AFLYY), which currently has a B (Buy) rating.

SAVE shares rose $0.05 (+0.20%) in premarket trading Tuesday. Year-to-date, SAVE has gained 11.72%, versus a -18.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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