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On Tuesday, Morgan Stanley (NYSE:MS) made a significant adjustment to its outlook on Volaris (NYSE:VLRS), downgrading the airline’s stock rating from Overweight to Equalweight and significantly reducing the price target to $4.40, a steep decline from the previous $11.00 target. The stock, currently trading at $3.94 and near its 52-week low, appears undervalued according to InvestingPro analysis. This move follows Volaris’s second-quarter guidance, which indicated potential difficulties ahead for the company.
The downgrade was precipitated by a forecast that showed Volaris facing challenges with reduced capacity and lower yields than previously expected. Despite trading at an attractive P/E ratio of 4.37 and maintaining profitability over the last twelve months, Morgan Stanley analysts noted that while they recognize the benefits of capacity discipline in the aviation market, the updated projections for the second half of 2025 and the full year of 2026 remain substantially below their earlier estimates.
The new price target of $4.40 per American Depositary Share (ADS) takes into account Morgan Stanley’s revised expectations for Volaris’s earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) in 2026. The firm also adjusted the target multiple downward from 3.6 to 3.5, citing increased macroeconomic uncertainty as a contributing factor.
Morgan Stanley’s assessment included a nod to the possibility of a sequential yield recovery in the latter half of the year, which could provide some relief for Volaris. However, even with this potential improvement, the financial institution’s year-end 2025 projections remain conservative in light of the recent data.
The revised outlook from Morgan Stanley reflects a cautious stance on Volaris’s financial performance in the near term, as the airline industry continues to navigate a complex economic landscape. Volaris’s stock performance and investor sentiment are likely to be influenced by these updated analyst views and the company’s ability to adapt to the current market conditions. For deeper insights into Volaris’s financial health and detailed analysis, including 12 additional ProTips and comprehensive valuation metrics, check out the full research report available on InvestingPro.
In other recent news, Volaris has experienced a series of adjustments in its stock ratings and price targets by major financial institutions. Barclays (LON:BARC) downgraded Volaris from Overweight to Equalweight, with a significant reduction in the price target from $12.00 to $4.50, citing disappointing financial performance and uncertain future prospects. BofA Securities also revised its price target for Volaris shares, reducing it from $11.40 to $9.50 while maintaining a Buy rating, reflecting weaker revenue projections and macroeconomic uncertainties. Meanwhile, Evercore ISI adjusted Volaris’s price target from $15.00 to $13.00, holding an Outperform rating, following a modest decrease in unit revenue and increased costs. Despite these challenges, Volaris reported a $0.39 EPS in the fourth quarter of 2024, surpassing Evercore ISI’s estimate by one cent. BofA Securities had previously cut the price target to $11.40 from $12.20, maintaining a Buy rating, after noting a decline in yields and increased costs. Volaris’s net profit stood at $46 million, marking a 59% year-over-year decrease, and was 27% below BofA’s expectations. These developments highlight the airline’s mixed financial performance and the cautious stance of analysts regarding its near-term outlook.
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