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On Tuesday, Barclays (LON:BARC) analysts issued a downgrade for Volaris shares (NYSE:VLRS), adjusting the airline’s stock rating from Overweight to Equalweight and significantly reducing the price target from $12.00 to $4.50. The reevaluation follows Volaris’s disappointing financial performance in the first quarter of 2025 and a guarded forecast for the future. According to InvestingPro data, the stock has fallen over 47% year-to-date and is currently trading at $3.94, near its 52-week low. The stock’s RSI indicates oversold conditions, potentially presenting an opportunity for value investors.
The revised $4.50 price target is derived from a 4.3x 2025 enterprise value to EBITDAR (EV/EBITDAR) multiple, slightly above the 4.1x average of industry peers. Barclays’s analysts expressed concern over Volaris’s weak unit revenue in the first quarter and the likelihood that this trend might continue into the second quarter, prompting a more conservative outlook on the airline’s stock. InvestingPro analysis shows the stock trading at an EV/EBITDA of 3.53x and a P/E ratio of 4.37x, suggesting attractive valuation metrics despite challenges. Get access to 12 additional ProTips and comprehensive valuation metrics with InvestingPro.
Volaris’s performance has been notably underwhelming year-to-date, with a 49% decline compared to the Mexbol index’s 15% increase. Despite this, Barclays believes the latest quarterly results and insights from the management’s earnings call indicate an absence of a clear route to near-term revenue improvement. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, though investors should note that net income is expected to decline this year.
The analysts also highlighted the impact of the current geopolitical climate, specifically U.S. immigration policies, on Volaris’s Visiting Friends and Relatives (VFR) market between Mexico and the U.S. While this market segment has shown resilience in the past, Barclays no longer assumes this will continue, adopting a more cautious stance on Volaris.
In their commentary, Barclays acknowledged that Volaris’s management is expected to take all necessary measures to adapt and conserve cash. However, they cautioned that the challenging conditions affecting the airline could persist longer than anticipated, influencing their decision to downgrade the rating and price target for Volaris stock.
In other recent news, Volaris has faced several adjustments in financial outlooks by major analyst firms. BofA Securities has revised its price target for Volaris shares from $11.40 to $9.50, maintaining a Buy rating. This adjustment follows a weaker-than-expected performance in the first quarter of 2025, with a 27% year-over-year decline in yields and a 6% drop in ancillary revenue per passenger. EBITDAR for the quarter was $203 million, aligning with BofA’s forecast, yet the firm cited macroeconomic uncertainties as a reason for the downgrade. Similarly, Evercore ISI reduced Volaris’s price target from $15.00 to $13.00, while still rating the stock as Outperform. This comes after Volaris reported a modest 2% year-over-year decrease in unit revenue for the fourth quarter of 2024, alongside a 3% rise in total unit cost. Despite these challenges, Volaris exceeded Evercore ISI’s earnings per share estimate by one cent, achieving $0.39 EPS for the quarter. Both firms continue to see potential in Volaris despite recent financial hurdles.
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