Stifel Sees Potential For A 20% Return In Allegiant

Allegiant Air parent company Allegiant Travel Company (NASDAQ: ALGT) has been awarded Stifel’s highest rating. 

The Analyst

Stifel analyst Joseph DeNardi upgraded Allegiant Travel from Hold to Buy and upped the price target from $150 to $200, suggesting roughly 20-percent upside from the $165.50 level at which the stock closed Friday.

The Thesis 

Allegiant Travel shares are trading at 13 times Stifel’s 2019 earnings per share estimate of $15.50, DeNardi said in a Monday note. (See the analyst’s track record here.) 

Stifel’s estimate incorporates a 2.5-percent total operating unit revenue increase, 1-percent average decline in cost per available seat mile and a $2.15/gallon jet fuel price in 2018 and 2019. 

Against this backdrop, the company faces a relatively lower-risk revenue outlook, as 80 percent of its routes are in non-competitive markets, DeNardi said. The analyst projects that Allegiant’s ramping revenue initiatives in 2018 — namely improved revenue management and increasing contributions from its co-branded credit card — contributing about 3 points to year-over-year unit revenue.

“An improving revenue outlook combined with lower operational risk and the prospects for compelling cost leverage in 2018/2019 gives us confidence in ALGT’s margin profile both relative to its [ultra low cost-carrier] peers and on an absolute basis,” DeNardi said.

Allegiant has stronger near-term revenue trends with less downside risk, even if competitive dynamics worsen, DeNardi said.  The company also has industry-best CASMx trends, he said. 

Price Action

Allegiant Travel is down about 7 percent over the past year.

At the time of writing, Allegiant Travel was rallying 2.48 percent at $169.60. 

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