On Monday, TD Cowen adjusted its outlook for Sun Country Airlines Holdings (NASDAQ:SNCY), increasing the price target from $17.00 to $20.00 while maintaining a Buy rating on the stock. The revision comes in response to Sun Country's announcement of an expanded agreement with Amazon (NASDAQ:AMZN). This deal involves the addition of 8 Amazon-owned B737-800BCFs to its cargo service fleet, with the integration set to occur from late first quarter through the third quarter of 2025.
The new arrangement is expected to substantially improve the airline's cargo margins, as the additional aircraft are predicted to contribute positively to earnings upon their introduction. Sun Country will be operating a total of 20 aircraft for Amazon following the expansion of their partnership.
To facilitate this growth in cargo services, Sun Country plans to scale back its scheduled service operations in 2025. The anticipated reduction is projected to significantly enhance the airline's revenue per available seat mile (RASM) in the following year.
In other recent news, Sun Country Airlines has been actively expanding its cargo fleet through a deal with Amazon, which extends their collaboration until 2030, potentially until 2037. The agreement stipulates that Sun Country will add up to eight Boeing (NYSE:BA) 737-800 cargo aircraft to its operations starting in early 2025, growing its cargo fleet from 12 to a maximum of 20 freighters. This move aligns with Sun Country's strategy of leveraging shared resources across its scheduled service, charter, and cargo businesses.
Similarly, Deutsche Bank revised its stock price target for Sun Country to $18 from $20, while still endorsing the stock with a Buy rating. This was in response to Sun Country's operating margin for the March quarter, which was a robust 18.2%. However, the forecast for the June quarter suggests a significantly lower operating margin range of 4% to 7%.
InvestingPro Insights
Amidst the positive outlook following Sun Country Airlines Holdings' (NASDAQ:SNCY) expanded deal with Amazon, InvestingPro data reveals a nuanced financial landscape. The airline boasts a market capitalization of $635.6 million and is trading at an attractive P/E ratio of 9.36, which is slightly adjusted to 9.06 when looking at the last twelve months as of Q1 2024. This low P/E ratio is particularly compelling relative to its near-term earnings growth, with a PEG ratio for the same period standing at just 0.23, suggesting potential for increased investor value.
Additionally, Sun Country has seen a significant return over the last month, with a 21.51% total price return, which aligns with the recent positive sentiment from the market. Investors may also find the company's solid revenue growth of 10.91% over the last twelve months as of Q1 2024 indicative of its financial health and trajectory, especially in light of the new Amazon agreement.
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