Volaris stock price target cut to $9.50 by BofA Securities

On Monday, BofA Securities adjusted its price target for Volaris (NYSE:VLRS) shares, reducing it from $11.40 to $9.50, while maintaining a Buy rating on the stock. BofA Securities cited the discontinuation of the strong 2025 margin guidance provided in the fourth quarter of 2024 due to macroeconomic uncertainties. According to InvestingPro data, Volaris currently trades at a P/E ratio of 3.81, suggesting a notably low earnings multiple despite recent challenges. The stock appears undervalued based on InvestingPro’s comprehensive Fair Value analysis, which considers multiple valuation metrics and growth factors. The firm has revised its estimates to account for the weaker second quarter of 2025 Total (EPA:TTEF) Revenue per Available Seat Mile (TRASM) guidance, which now forecasts an EBITDAR margin of approximately 31% for 2025, down from the ~35% previously expected and below the prior guidance range of 34-36%.

The first quarter of 2025 was marked by a notable decline in yields, which fell 27% year-over-year, and a decrease in ancillary revenue per passenger, down 6% year-over-year. These figures were influenced by foreign exchange rate fluctuations, leading to a TRASM decrease of 17% year-over-year, which is 3% below the BofA Securities estimate (BofAe). However, EBITDAR for the quarter stood at $203 million, aligning with the BofAe forecast. InvestingPro analysis shows the company maintains a healthy gross profit margin of 35.3% and generated $506.65 million in levered free cash flow over the last twelve months, demonstrating operational resilience despite challenges.

BofA Securities believes the year-to-date stock performance, which is down 44%, already reflects the weak operating momentum. The firm reiterated its Buy rating, shifting its valuation focus to 2026 with an adjusted enterprise value to EBITDAR (Adj. EV/EBITDAR) multiple of 7.0x, moving away from the 2025 multiple. Consequently, the price objective was lowered to $9.5 per share from $11.4 per share, suggesting a potential upside of 113% compared to the current share price. This adjustment also translates to a new local share price target of MXN19, down from MXN23. InvestingPro subscribers can access additional insights through the comprehensive Pro Research Report, which includes detailed analysis of Volaris’s financial health, valuation metrics, and growth prospects, along with 10 key ProTips that could impact investment decisions.

In other recent news, Volaris has reported its financial results, which have prompted adjustments in analyst evaluations. The airline’s fourth-quarter 2024 earnings per share (EPS) surpassed Evercore ISI’s estimates by one cent, reaching $0.39, largely due to higher-than-expected revenue and a lower tax rate. However, Volaris experienced a 2% year-over-year decrease in unit revenue and a 3% increase in total unit costs, with non-fuel unit costs rising by 17%. Evercore ISI responded by lowering Volaris’s price target from $15.00 to $13.00, maintaining an Outperform rating. BofA Securities also revised its outlook, reducing the price target from $12.20 to $11.40 while keeping a Buy rating.

The revision by BofA was influenced by Volaris’s 5% year-over-year drop in yields and a significant increase in depreciation and amortization costs, which were 24% higher year-over-year. Despite these challenges, Volaris’s earnings before interest and taxes (EBIT) grew by 13% year-over-year, excluding lease expenses. The airline reported a net profit of $46 million, marking a 59% year-over-year decrease. Both Evercore ISI and BofA Securities acknowledge the mixed financial performance of Volaris, but maintain a positive outlook on the stock.

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