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On Wednesday, JPMorgan initiated coverage of Sun Country Airlines Holdings (NASDAQ:SNCY), assigning the airline an Overweight rating and setting a price target of $23.00. The move reflects the firm's positive outlook on the airline's financial prospects, underpinned by a diversified revenue stream and strong operational margins.
The stock, currently trading near its 52-week high of $17.00, has shown remarkable momentum with a 35% gain over the past six months. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics.
Sun Country Airlines, known for its low-cost carrier model, benefits from a unique business structure that includes sizable Charter and Cargo operations. These segments account for approximately one-third of the company's $1.06 billion in revenue and provide a stable income stream, which is less dependent on the fluctuations of consumer discretionary spending on air travel.
The airline's ability to share resources across its three business segments—scheduled service, charter, and cargo—has been a key factor in achieving impressive margins that rival those of major airlines. With a gross profit margin of 31.45% and an EV/EBITDA ratio of 7.33x, this operational efficiency has allowed Sun Country to stand out in the competitive airline industry. InvestingPro subscribers can access detailed financial health scores and 8 additional ProTips that provide deeper insights into the company's performance.
Despite these strengths, JPMorgan analysts point out that Sun Country's stock is currently trading at just 5 times its estimated 2026 enterprise value to EBITDAR (EV/EBITDAR), which is lower than its low-cost carrier peers. The firm's price target of $23 suggests a significant upside potential of 37% from current levels, based on their valuation methodology for ultra-low cost carriers.
The JPMorgan coverage initiation and price target announcement could influence investor sentiment and contribute to market movements for Sun Country Airlines shares in the coming trading sessions.
In other recent news, Sun Country Airlines reported mixed results for the third quarter of 2024, with total revenue remaining roughly level with the previous year at $249.5 million. Despite a decrease in passenger segment revenue by 3% and a 5.9% reduction in scheduled service revenue, the airline's cargo segment revenue hit a record $29.2 million, up 11.9%, with further growth expected. Goldman Sachs resumed coverage of Sun Country, assigning a Neutral rating to the company's shares and highlighting the airline's robust margins and potential for margin growth into 2025. The firm anticipates that Sun Country's rising profitability will lead to an increase in free cash flow over the medium term.
These recent developments are part of the airline's strategic plans, including the addition of five leased Oman aircraft by the end of 2024 and a review of the possibility of share buybacks in 2025. The airline also projects Q4 revenue between $250 million and $260 million, with an operating margin of 7% to 9%. Sun Country's unique business model, combining passenger, cargo, and charter services, has positioned it favorably in the market.
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