Allegiant shares target cut by Susquehanna on revenue concerns

Susquehanna has adjusted its financial outlook for Allegiant Travel Company (NASDAQ: NASDAQ:ALGT), lowering the price target to $40 from the previous $55 while maintaining a Neutral rating on the stock.

The revision comes amid expectations of a continued supply and demand imbalance within the U.S. domestic market, which is anticipated to lead to a weaker fare environment through the end of 2024. Additionally, there is a forecasted decrease in demand for the Sunseeker resort in Florida.

The firm has reduced its second-half 2024 revenue estimate for Allegiant by approximately 8%, which also resulted in a downward revision of the adjusted earnings per share (EPS) estimate to -$3.45, compared to the prior estimate of -$0.25 and the consensus of $0.04.

For the full year 2025, the revenue estimate has been decreased by around 3% to $2.74 billion, which is about 3% below the consensus. However, the adjusted EPS estimate for 2025 has been slightly increased to $3.20 from $3.10, despite being below the consensus of $4.95.

The updated financial model for Allegiant includes assumptions of a 6% year-over-year increase in available seat miles (ASMs), a 4% rise in Airline-Only total revenue per available seat mile (TRASM), and a 4% increase in Airline-Only cost per available seat mile excluding fuel (CASM-ex).

These projections are more conservative than the consensus estimates. Revenue from the Sunseeker resort is now projected at approximately $97 million, down from the previous estimate of $111 million but slightly above the consensus of $93 million.

Susquehanna also adjusted its valuation multiples for Allegiant, reducing the enterprise value (EV) to earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) multiple to 5.5 times and the price-to-earnings (P/E) multiple to 11 times.

It reflects a half-turn decrease in the EV/EBITDAR multiple and a full turn decrease in the P/E multiple. The firm cites a challenging outlook for ultra-low-cost carriers (ULCCs) as we move toward 2025.

Allegiant's second-quarter financial results showed a consolidated net income of $32.5 million and earnings per share of $1.77, outperforming TD Cowen's and consensus estimates. However, TD Cowen has reduced its price target for Allegiant to $33, citing concerns about the ongoing challenges at the Sunseeker resort.

The company is working on several initiatives to improve its performance, including integrating new MAX aircraft into its fleet, refining its Navitaire reservation system, and collaborating with Prospect Hotel Advisors to bolster Sunseeker's performance. Despite these efforts, some analysts remain skeptical about their potential to excite the market.

Other analyst firms have also adjusted their stock targets for Allegiant. Susquehanna reduced its price target to $55 from $60, keeping a Neutral rating, while Raymond James reduced its price target from $71 to $68, maintaining an Outperform rating.

InvestingPro Insights

As investors weigh Susquehanna's revised outlook on Allegiant Travel Company (NASDAQ:ALGT), real-time data and insights from InvestingPro can provide additional context. Allegiant's market capitalization stands at approximately $717 million, reflecting the company's scale in the industry. Despite trading at a low Price / Book multiple of 0.54, which might attract value investors, challenges are evident with a negative P/E ratio of -50.51 indicating earnings concerns, and a revenue decline over the last twelve months of -0.25%. Moreover, the company's dividend yield is notably high at 5.92%, potentially signaling a commitment to returning value to shareholders amidst financial headwinds.

Two notable InvestingPro Tips for Allegiant include the significant debt burden the company operates with and the analyst consensus that the company won't be profitable this year. These tips underscore the financial pressures Allegiant faces, which may be of interest to investors considering the stock's future performance. For a more comprehensive analysis, there are 14 additional InvestingPro Tips available, including insights on earnings revisions and stock price volatility, which can be found at InvestingPro.

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