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Investing.com - UBS has initiated coverage on Frontier Group Holdings Inc (NASDAQ:ULCC) with a Neutral rating and a $4.00 price target, according to a research note released Monday. The airline, currently trading at $4.15, has shown significant volatility with a 52-week range of $2.79 to $10.26. According to InvestingPro analysis, the company operates with a significant debt burden, with a debt-to-equity ratio of 8.4x.
UBS analyst Atul (NSE:ATLP) Maheswari expects Frontier to report second-quarter results in line with the company’s outlook, noting that as of May 20, the airline was tracking consistent with guidance provided on May 1. The firm models revenue per available seat mile (RASM) growth of 1.2% for the second quarter, compared to Frontier’s guidance of low-single-digit percentage growth on a stage-adjusted basis. Recent InvestingPro data shows the company’s revenue growth at 6% over the last twelve months, though with concerning gross profit margins of just 7%.
On the cost side, UBS believes the second quarter was "heavily inflationary" as Frontier reduced close-in capacity in response to rapidly deteriorating demand. The firm also notes that the quarter likely had fewer sale-leaseback gains compared to the same period last year.
UBS forecasts a 23% year-over-year increase in cost per available seat mile, excluding fuel (CASM-ex) for the second quarter. This leads to the firm’s second-quarter earnings per share estimate of -$0.28, compared to consensus expectations of -$0.27 and company guidance of -$0.23 to -$0.37.
While both company guidance and consensus expectations call for an inflection in Frontier’s financial performance and a return to profitability in the second half of the year, UBS believes Frontier "will need to provide evidence of a strong improvement in 3Q RASM growth YoY for the market to get confidence that 2H profit is indeed achievable." With the next earnings report due on July 30, investors can access comprehensive analysis and 12 additional ProTips through InvestingPro’s detailed research report, which provides deeper insights into the company’s financial health and growth prospects.
In other recent news, Frontier Group Holdings reported a net loss of $43 million for the first quarter of 2025, translating to a loss of $0.19 per share, which was significantly below the forecasted loss of $0.01 per share. The company’s revenue reached $912 million, falling short of the expected $998.06 million. Despite these results, Frontier’s management remains focused on achieving profitability in the second half of 2025, supported by strategic commercial investments and capacity optimization. Additionally, UBS analyst Thomas Wadewitz revised Frontier Group’s stock target to $3.50 from $4.00 while maintaining a Neutral rating, citing the company’s recent loss and decline in Revenue per Available Seat Mile (RASM) in March. On a more positive note, Frontier Airlines introduced a new benefit for its FRONTIER Miles Elite Platinum and Diamond Status members, offering free unlimited companion travel as part of its loyalty program enhancements. This initiative is part of Frontier’s broader strategy, "The New Frontier," which aims to revamp the airline’s offerings with transparent pricing and new seating options. The company also continues to focus on moderating industry capacity and managing costs effectively.
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