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On Monday, BofA Securities adjusted its financial outlook on Volaris (NYSE:VLRS), reducing the price target to $11.40 from the previous $12.20, while still recommending the stock as a Buy. Currently trading at $6.82, the stock sits well below the broader analyst target range of $10-15. The revision follows Volaris’s recent performance metrics, which indicated a decline in yields and an increase in certain costs.
According to BofA Securities, Volaris experienced a 5% year-over-year (YoY) drop in yields, which was 9% below BofA’s expectations. This was slightly offset by a rise in ancillary revenues. Total (EPA:TTEF) revenue per available seat mile (TRASM) decreased by 2% YoY, aligning with BofA’s projections. Despite these challenges, InvestingPro data shows the stock has gained over 30% in the past six months and trades at an attractive P/E ratio of 4.08. The airline also saw a significant increase in depreciation and amortization costs, which were 24% higher YoY and 9% higher quarter-over-quarter (QoQ), surpassing BofA’s estimates by 19%.
The report highlighted that these costs now represent 19.4% of Volaris’s revenue, compared to the 16.4% average observed over the past two years. BofA Securities suggested that further investigation is needed to understand the reasons behind this increase and whether it may happen again.
Excluding lease expenses, which were adjusted in the fourth quarter of 2023 to reflect lease extensions, Volaris’s earnings before interest and taxes (EBIT) showed a 13% YoY growth. However, this figure was 12% less than BofA’s expectations. The net profit reported by Volaris stood at $46 million, a 59% decrease YoY, and 27% below what BofA Securities had anticipated.
The new price target and maintained Buy rating reflect BofA Securities’ ongoing positive outlook on Volaris stock despite the airline’s mixed financial performance in the recent period. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which covers what really matters about Volaris through intuitive visuals and expert analysis.
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