Spirit Airlines, Inc. (SAVE) registered $1.34 billion in total revenues for the 2022 third quarter, up 45.6% year-over-year. However, it missed consensus revenue estimates by $3.10 million.

High airfares and pent-up travel demand in the post-pandemic era have helped the airline industry record significant gains of late. However, amid rising recession odds, demand might falter significantly.

According to JetBlue Airways Corporation (JBLU), its previously projected demand for December “has materialized below expectations.”

Moreover, domestic flight bookings for Thanksgiving 2022 were down around 7% from 2019 and might stay below optimal levels during the Christmas and New Year holidays. “The slower bookings growth indicates that some consumers may be waiting to see if prices come down materially, while others may pursue alternate forms of travel, such as by car or train,” Adobe said in its report.

In addition, investors’ pessimism toward airline stocks is evident from the U.S. Global Jets ETF’s (JETS) 5.6% decline over the past month.

SAVE has lost 7.7% over the past month to close the last trading session at $19.98. It has lost 8.6% year-to-date and 10% over the past year.

Here is what could shape SAVE’s performance in the near term:

Rising Expenses and Weak Balance Sheet

SAVE’s total operating expenses came in at $1.38 billion for the third quarter that ended September 30, 2022, up 51.8% year-over-year.

Its cash and cash equivalents came in at $953.43 million for the period ended September 30, 2022, compared to $1.33 billion for the period ended December 31, 2021. Also, its total current assets came in at $1.55 billion compared to $1.84 billion for the same period. Moreover, its total current liabilities came in at $1.67 billion, compared to $1.28 billion.

Mixed Valuations

SAVE’s forward EV/Sales of 1.26x is 22.1% lower than the industry average of 1.62x, while its forward Price/Sales of 0.43x is 65.8% lower than the industry average of 1.25x.

However, its forward EV/EBITDA of 14.47x is 38.7% higher than the industry average of 10.43x.

Negative Profitability Margins

SAVE’s trailing-12-month gross profit margin of 17.53% is 39.7% lower than the industry average of 29.09%. Its trailing-12-month negative EBITDA and net income margins of 1.03% and 7.95% are lower than the industry averages of 13.03% and 6.75%, respectively.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of negative 18.36%, 2.19%, and 4.27% are compared with the industry averages of 14.19%, 6.76%, and 5.31%, respectively.

POWR Ratings Reflect Bleak Prospects

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

SAVE has a D grade for Quality, consistent with its negative profitability margins.

It has a C grade for Stability, in sync with its beta of 1.10.

In the 30-stock Airlines industry, SAVE is ranked #28.

Click here for the additional POWR Ratings for SAVE (Growth, Value, Momentum, Sentiment).

View all the top stocks in the Airlines industry here.

Bottom Line

SAVE’s balance sheet for its latest reported quarter looks incapacitated. Moreover, it has lost 29.4% since hitting its 52-week high of $28.30 on February 10, 2022. Given the stock’s negative profitability and the uncertain industry outlook, I think SAVE might be best avoided.

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

While SAVE has an overall POWR Rating of D, one might consider looking at its industry peers, Deutsche Lufthansa AG (DLAKY), which has an overall A (Strong Buy) rating, and Qantas Airways Limited (QABSY), Singapore Airlines Limited (SINGY), and Air France-KLM SA (AFLYY), which have an overall B (Buy) rating.

SAVE shares were trading at $19.87 per share on Friday morning, down $0.11 (-0.55%). Year-to-date, SAVE has declined -9.06%, versus a -17.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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