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On Friday, Susquehanna has adjusted its financial outlook for Frontier Group Holdings Inc (NASDAQ: ULCC), reducing the price target to $3.00 from the previous $4.50 while maintaining a Neutral rating on the stock. The revision follows the anticipation of a continued supply and demand imbalance in the domestic US airline market, which is expected to persist into the end of 2024.
The firm has decreased its revenue estimate for the second half of 2024 by approximately 4%, citing a weaker fare environment. The analyst believes that the introduction of new revenue initiatives by Frontier Group will require time for customer uptake to materialize. Consequently, the full-year 2025 revenue forecast has been lowered by around 6% to approximately $4.17 billion, compared to the prior estimate of roughly $4.43 billion and the consensus estimate of about $4.3 billion.
The revised financial outlook also includes a change to the earnings per share (EPS) estimate for the fiscal year 2025. The EPS projection has been adjusted to $0.60, down from the earlier estimate of $0.75, but still above the consensus estimate of $0.55.
The adjustment reflects the expectation that Frontier Group will recognize approximately 21 sale-leaseback transactions (SLBs) in FY25, fewer than the 23 recorded in FY24, and a shift in the mix towards more lower-priced A320neo aircraft as opposed to the A321neo models.
For the fiscal year 2025, the base-case assumptions now include available seat miles (ASMs) increasing by 8% year-over-year, total revenue per available seat mile (TRASM) growing by 4% year-over-year, and cost per available seat mile excluding fuel (CASM-ex) rising by 5% year-over-year. These projections are slightly more conservative than the soft guidance and consensus estimates.
The firm's updated price target of $3.00 for Frontier Group's stock reflects the changes to the profit and loss projections and updates to cash flow assumptions. No changes have been made to the valuation multiples used in the analysis.
In other recent news, Frontier Group has reported a 1% increase in total revenue to $973 million in its latest earnings report. The company, which has initiated a transformation strategy known as "Frontier 2.0," has also been focusing on cost-cutting measures and operational efficiency. Despite facing industry challenges, the company's strategic adjustments have led to expectations of Frontier emerging as the low-cost leader by 2025.
In relation to this, Morgan Stanley has maintained an Equalweight rating for Frontier Group, while Citi has adjusted the company's price target downward to $3.50, maintaining a Neutral rating. Both ratings come in light of the current challenges in the discount airline sector and Frontier's high financial leverage.
Among other recent developments, Frontier Group has reported adjusted non-fuel operating expenses below guidance at $650 million, ending the quarter with $658 million in cash and 148 aircraft in its fleet. The company has also deferred 54 aircraft from 2025 to 2028, extending lease deferrals to 2031.
InvestingPro Insights
In light of Susquehanna's revised financial outlook for Frontier Group Holdings Inc (NASDAQ: ULCC), it's pertinent to consider the latest data and insights from InvestingPro. Frontier's market capitalization stands at approximately $763.24 million, reflecting the market's current valuation of the company. Despite a challenging fare environment, Frontier's net income is expected to grow this year, which aligns with Susquehanna's EPS projection of $0.60 for fiscal year 2025, marginally above the consensus estimate.
InvestingPro Tips highlight that Frontier operates with a significant debt burden and may have trouble making interest payments on its debt, factors that are essential for investors to consider when evaluating the company's financial health. Additionally, the company's stock price movements have been quite volatile, with a significant return over the last week but poor performance over the last month and longer periods.
Analyzing the recent performance, Frontier's stock has delivered a 9.32% return over the last week, yet it has experienced a notable decline of 20.93% over the last month and 51.7% over the last year. These metrics underscore the stock's volatility and the bearish sentiment that has prevailed over the past several months.
For readers seeking a deeper analysis, InvestingPro offers a comprehensive list of additional tips that can provide further context on Frontier's financial position and market performance. These insights can be a valuable resource for investors looking to make informed decisions about their investments in the airline industry.
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