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On Friday, UBS analysts maintained a Neutral rating on Frontier Group Holdings Inc (NASDAQ:ULCC) with a steady price target of $4.00. The airline, known for its cost-effective travel options, has experienced a noticeable drop in demand during March, which did not prompt a mid-quarter update as seen with some competitors. Trading at $3.11, the stock has declined nearly 50% year-to-date, though InvestingPro data suggests the stock is currently in oversold territory. UBS's analysis revealed that Frontier is facing challenges due to increased discounting driven by reduced demand, particularly from last-minute bookings.
Frontier Group's revenue growth is expected to hover around 5% on a 5% increase in available seat miles (ASM), aligning with the company's historical revenue growth of 5.18%. The nearly flat revenue per available seat mile (RASM) comes despite an easier comparison to the first quarter of 2024, where RASM was down by 5.2%. UBS suggests that the stagnant RASM, especially in light of an easier year-over-year comparison, indicates a significant downturn in March's latter half. InvestingPro analysis reveals the company operates with a significant debt burden of $4.47 billion, which may impact its financial flexibility.
The company has also forecasted a pretax margin of negative 5% for the first quarter, which UBS estimates could mean a cost per available seat mile excluding fuel (CASM-ex) of roughly 9%, assuming a fuel cost of $2.50 per gallon. This figure is a notable adjustment from UBS's initial estimate of 15% prior to the release.
Looking ahead to the second quarter, Frontier anticipates a slight decrease in capacity and has withdrawn its financial guidance for the fiscal year 2025. Despite trading at a modest P/E ratio of 8.49, the stock has seen a substantial decline, dropping 50% since the start of the year. UBS analysts believe that the market had already adjusted its expectations for Frontier Group following updates from its peers. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value model, with 15 additional ProTips and comprehensive financial metrics available to subscribers through the Pro Research Report.
In other recent news, Frontier Group Holdings Inc. has adjusted its first-quarter 2025 outlook, citing a softened revenue growth due to weakened demand in March. The company expects revenue growth of approximately 5% on capacity growth of the same percentage, marking a downward adjustment from its previous forecast. The company also anticipates a pre-tax loss margin for the first quarter of around 5%, with an adjusted net loss per share projected between $0.20 and $0.24. UBS analyst Thomas Wadewitz has revised Frontier's stock target to $7.00 from $10.00, maintaining a Neutral rating, while Citi analyst Stephen Trent (NSE:TREN) resumed coverage with a Neutral rating and a $7.25 target, noting improved operational performance. Evercore ISI also adjusted its price target for Frontier to $5.00, maintaining an In Line rating, in response to the airline's updated first-quarter guidance and capacity adjustments. Additionally, Frontier's Chief Accounting Officer, Josh Wetzel, is set to resign at the end of May, with no successor announced yet. The company has reported liquidity of approximately $885 million as of March 31, 2025, including cash and available credit. Frontier continues to navigate a competitive landscape with a focus on managing capacity and costs amid fluctuating demand.
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