On Wednesday, Deutsche Bank revised its stock price target for Sun Country Airlines Holdings (NASDAQ:SNCY) to $18 from the previous $20, while still endorsing the stock with a Buy rating. The adjustment follows Sun Country’s announcement of its operating margin for the March quarter, which was a robust 18.2%, marking the airline’s seasonally strongest period.
Still, the forecast for the June quarter suggests a significantly lower operating margin range of 4% to 7%, which fell short of expectations, prompting a 12.4% decline in the airline's shares on the day of the announcement.
The analyst from Deutsche Bank attributed the disappointing outlook for the June quarter to Sun Country’s ambitious capacity expansion at a time when staffing constraints have eased, projecting around a 19% increase in scheduled service available seat miles (ASMs).
The airline also faces heightened competition in its key markets, which has contributed to an oversupply of capacity, especially during off-peak periods in April and May. Nonetheless, the outlook for June and July appears more promising.
The market's failure to absorb added capacity as anticipated has led to revenue challenges for Sun Country. An oversupply situation, coupled with the timing of Easter, which adversely affected revenue by approximately $3 million in April, is expected to result in a sequential decrease in the top line by approximately 17% for the June quarter. The analyst projects a total revenue of $264 million, reflecting a modest year-over-year increase of 1.1%.
In light of these developments, Deutsche Bank has lowered its June quarter earnings per share (EPS) estimate for Sun Country from $0.40 to $0.12, which is below the Bloomberg consensus EPS of $0.30.
This revision takes into account the lower-than-anticipated revenue growth—previously forecasted at $299 million—and is partially offset by reduced costs. The analyst expects the June quarter operating margin to be around 5.7%, with a pre-tax margin of 3.3%.
InvestingPro Insights
As investors digest the latest updates from Sun Country Airlines Holdings, real-time data from InvestingPro offers additional context to the company's financial health and market position. According to InvestingPro, Sun Country's market capitalization stands at $648.76 million, showcasing the company's size within the airline industry.
Despite recent price fluctuations, the airline is trading at a low adjusted P/E ratio of 9.38 for the last twelve months as of Q1 2024, indicating potential undervaluation relative to its near-term earnings growth. The PEG ratio, which measures the price of a stock relative to its earnings growth rate, is also notably low at 0.23, suggesting that the stock may be undervalued based on its expected earnings growth.
From a performance standpoint, Sun Country has experienced a revenue growth of 10.91% over the last twelve months as of Q1 2024, which, despite the recent challenges, signals a company that is expanding its financial top line. Still, the airline's stock has faced volatility, with a 1-week price total return of -8.74%, reflecting the market's reaction to the revised guidance and operating margin concerns.
InvestingPro Tips highlight several factors that could influence investor decisions. The management's aggressive share buyback initiative could be a sign of confidence in the company's value, while the fact that two analysts have revised their earnings upwards for the upcoming period suggests optimism about Sun Country's future profitability. Moreover, the stock is trading near its 52-week low, which might present a buying opportunity for some investors.
For those interested in a deeper analysis, InvestingPro offers more tips that could help in making a more informed investment decision. Subscribers can access these insights and use the special coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are 11 additional InvestingPro Tips available for Sun Country Airlines Holdings, which can be found at https://www.investing.com/pro/SNCY.
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