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On Tuesday, Evercore ISI adjusted its financial outlook for Volaris (NYSE:VLRS), reducing the airline’s price target from $15.00 to $13.00, while still holding an Outperform rating on the stock. Currently trading at $6.79, with a P/E ratio of just 4.08x, InvestingPro analysis suggests the stock is undervalued. The analysis follows Volaris’ report of a modest decrease in unit revenue by 2% year-over-year in the fourth quarter of 2024, contrasted with a 3% rise in total unit cost. Notably, non-fuel unit costs surged by 17%, even as fuel costs per gallon fell by 20%.
The airline’s capacity reduction of 5% led to a pre-tax margin of 5%, a significant drop from the 14% margin reported in the fourth quarter of 2023. Despite recent challenges, including an 18.6% stock price decline over the past week, Volaris managed to surpass Evercore ISI’s earnings per share (EPS) estimate by one cent, posting a $0.39 EPS for the quarter, attributed to higher-than-anticipated revenue and a lower tax rate which helped to balance out increased unit costs and non-operational expenses. For deeper insights into Volaris’ financial health and growth potential, InvestingPro subscribers have access to over 30 additional key metrics and analysis.
Volaris has observed a recent dip in Visa-Free Return (VFR) transborder travel due to uncertainties surrounding immigration policies. However, the company expects this to be a temporary setback. Improved booking patterns have emerged since the initial slump that followed the inauguration in the United States. Furthermore, Volaris has shared a positive outlook on the demand for the upcoming peak Easter season in the second quarter.
Despite these optimistic elements, the initial outlook for 2025 has prompted Evercore ISI to anticipate a reset in near-term unit revenue for Volaris. The adjusted price target reflects these updated expectations for the airline’s financial performance.
In other recent news, Volaris has been the subject of a revised financial outlook by BofA Securities. The firm adjusted its price target for the airline to $11.40 from $12.20 while maintaining a Buy rating. This decision comes after Volaris reported a 5% year-over-year drop in yields, which fell 9% below BofA’s expectations, although there was a slight offset due to an increase in ancillary revenues. Total (EPA:TTEF) revenue per available seat mile decreased by 2% year-over-year, aligning with BofA’s projections. The airline also faced a significant rise in depreciation and amortization costs, which were 24% higher year-over-year and 9% higher quarter-over-quarter, surpassing BofA’s estimates by 19%.
These increased costs now account for 19.4% of Volaris’s revenue, up from the 16.4% average over the past two years. Excluding lease expenses, Volaris’s earnings before interest and taxes grew by 13% year-over-year, although this was 12% less than BofA’s expectations. The airline’s net profit stood at $46 million, marking a 59% decrease year-over-year and 27% below BofA Securities’ anticipated figures. Despite these mixed financial results, BofA Securities continues to hold a positive outlook on Volaris stock.
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